Although not the record-busting pace set five years ago, the revival of the oil and natural gas industry was on display in 2018 with $84 billion in merger and acquisition activity, according to the industry analysts at Drillinginfo.
Last year’s M&A pace came close but did not reach the $101 billion posted in 2014 before the bottom fell out of the market at the end of the year. Corporate consolidations in 2018 were also at near-record rates with five companies exiting the list of publicly traded companies. Investors are demanding corporations deliver positive cash flows, observed Andrew Dittmar, an analyst at Drillinginfo. “Wall Street no longer supports growth for growth’s sake,” he declared.
“Investors are ready to punish buyers who do deals without a clear profit strategy,”
The shift towards corporate-level M&A activity in the second half effectively pushed private equities to the sidelines in terms of deals, Drillinginfo reported. Private equity was a buyer in 46 percent of deals in 4Q17 only to fall to seven percent of deals in 4Q18.
Where private and institutional capital showed interest was in emerging plays such as the Austin Chalk in Louisiana and the margins of established resource plays. To illustrate the point, Drillinginfo estimated about half of all the deals in play at the start of the year were in the Permian and that for the year, $28.3 billion, or one of every three deals, was in the Permian.
Looking ahead, Drillinginfo expects the large public E&P companies to unload much of their non-core asset base in the months ahead. Also, private equity money is expected to come back into the picture in 2019 while the biggest market rewards will go to companies that best manage scale while keeping costs low.