Upstream report: new-round of deal-making on the horizon

By Staff | January 08, 2018

Private equity-backed start-ups could be a catalyst for a rebound in 2018 upstream merger and acquisition activity this year. According to Houston-based 1Derrick, after activity remained strong in 2016 and the first half of 2017, the second half of 2017 slowed, including in the Permian. 

Our team spoke with Mangesh Hirve, managing director for 1Derrick about its recent effort to highlight the M&A scene across the upstream sector. 

Hirve outlined several key takeaways from its recent report, including: 

-2017 global upstream M&A value touches $169 billion 

-International M&A activity (excluding the U.S.) is at $105 billion on the back of large North Sea portfolios switching hands 

-U.S. upstream M&A is valued at $64 billion, with post-Permania deal making slows down during Q3 to Q4 in 2017 

-Fewer deals totaling more than $1 billion took place 

-Private E&P’s curtailed acquisitions after 2014, but, private equity backed E&Ps make up for the slack 

-$15 billion of private equity-backed acquisitions in 2017 and an equal value of PE backed divestitures in 2017, led by Permian exits 

-More than 60 new companies received roughly $11 billion in capital commitments in 2017, and, that substantial capital firepower has gone unused


Heading into 2018, Hirve said there are multiple drivers pushing the positive mood amongst investors looking at the U.S. unconventional oil and gas market. “The price of oil is stable and trending upwards,” he said, adding that in addition to the Permian, the SCOOP/STACK and Bakken plays (along with a few others) are looking up.

 Oil prices have also peaked the interest or willingness of public E&Ps to extend their accelerated investment programs that originally started last year, Hirve said. Early guidance for this year indicates an average of 15 percent boost in this year’s spending. The index for E&P’s on the S&P that has risen more than 25 percent from mid-year lows has also strengthened the ability of companies to finance larger transactions. 

According to 1Derrick, one example of that is the purchase of Forge Energy by Oasis Petroleum for $946 million, 83 percent of which was funded through the issuance of common shares. “This first significant Permian deal since March 2017,” Hirve said, “could be a harbinger of accelerated 2018 M&A activity.”