Financial squeeze prompts U.S. oil company consolidation

Image: Chevron Corporation

Weak demand related to COVID-19 is hurting company finances and resulted in a series of U.S. upstream deals much more akin to friendly mergers than aggressive takeovers.

That is a key takeaway from Evaluate Energy’s latest M&A report – available to download here – that analyzes all major upstream deals globally in Q3 2020.

The third quarter saw $24 billion in deals – a significant uptick on the historic low of just $4 billion recorded in Q2. Friendly U.S. mergers, or mergers of equals, featured heavily.

Source: Evaluate Energy Q3 M&A Report

“These mergers are characterized by acquisitions where the share premium is either non-existent or is far lower than the usual level required to convince target company shareholders to part with shares,” said Eoin Coyne, Senior Analyst at Evaluate Energy and report author.

“The drop in oil demand and price has strained company finances and pushed some into viewing the safe harbour of a larger, better leveraged company as the best option.”

The Evaluate Energy report, released again in partnership with Deloitte, examines three recent U.S. deals in particular:

The proposed acquisition of Montage Resources by Southwestern Energy that will be conducted at a discount of the day-prior trading price;

  • The consideration for Devon Energy’s acquisition of WPX Energy represents a premium of just 3%; and
  • The quarter’s largest deal that saw Chevron acquire Noble Energy at just an 8% premium
  • “This industry consolidation is a trend that is likely to continue should the oil price remain below the break-even level required by many producers,” added Coyne.

Evaluate Energy’s latest M&A report includes analysis on all major deals agreed this quarter. The report includes details on a major increase in Canadian activity, analysis on an interesting cash generating arrangement for Antero Resources in West Virginia, and an overview of recent West African deals involving Total, Woodside and Cairn Energy.

 Download the report in full at this link.

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