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What Will Oil & Gas M&A Deal Making Look Like in 2021?

Recently TRC’s Rick Sisk, Vice President – Transaction Advisory Services, was part of Intralinks virtual roundtable series Oil & Gas Part II, “Has Oil & Gas Run Out of Steam?”

Like many industries, oil and gas has been significantly impacted by the COVID-19 pandemic. In the first part of our industry roundtable on the topic held this past spring, a distinguished panel of experts outlined how the dramatic plunge in oil demand hit the industry hard. There was little optimism for quick recovery at the time.

So where are we now? To learn more, Intralinks reconvened a panel of experts — Jamie Garrett, Principal at JoyCap Advisory LLC (formerly VP M&A, Direct Energy); Ian Graham, Senior Finance Director, Corporate Development Tax & Treasury at Trican Well Service, and Rick Sisk, Vice President, Transaction Advisory Services (oil & gas) at TRC Companies — to see the how oil and gas market has fared over the past few quarters. We also considered what 2021 might look like for an industry in flux.

Slow deal flow with glimmers of hope

Oil and gas M&A deal activity continues to be on the decline, with most deals occurring in the midstream. Barring a few notable transactions in Q3 2020 — Chevron’s USD $13.8 billion acquisition of Noble Energy, Berkshire Hathaway Energy’s USD $9.8 billion purchase of Dominion Energy’s gas transmission and storage assets and the merger of midsize U.S. oil producers Devon Energy and WPX Energy in a USD $2.6 billion all-stock deal — the downturn in North America has forced potential buyers and investors to search for valuable assets across the globe. With low oil prices expected to continue for the foreseeable future, cross-border M&A seems to be an area of potential growth.

Experts like Jamie Garrett expressed cautious optimism: “Things are a little bit more stable,” she remarked, citing how many companies have been able to effectively adapt to the COVID-19-era’s disruptive dynamic.

But long-term, with distressed sales and consolidation continuing, energy continues to face an existential crisis.

Overall, even the big players in the industry are signaling that oil is at its peak and are hinting at a shift to natural gas. Companies like Shell and BP may very well strive for more retail exposure and nontraditional ventures. And while climate change drives activity in the retail electric and generation in the small- to mid-cap space, oil and gas will continue trying to get a boost from SPAC (Special Purpose Acquisition Companies) deals.

Key Takeaways

Energy services have been hit hardest, says Ian Graham. The outlier? Natural gas prices are at the highest level seen in years. Going into 2021, Ian said that deals are going to be efficiency driven. If organizations can find some needed synergy in the pandemic era, we’ll see even more consolidation.

“Responsible investment” (i.e. clean energy, renewables, energy storage) will continue to have a major impact on M&A. “PE clients are mandating that organizations do an ESG (Environmental, Social and Governance) screen as part of due diligence,” said TRC Company’s Rick Sisk.

Consolidation aside, adaptability will be a strategic necessity for all organizations evaluating deals in this environment. Rick discussed how artificial intelligence (AI) and technology platforms that have created due diligence efficiencies during the pandemic will be crucial to closing M&A deals in this work-from-home environment.

Finally, our panel also cited potential political implications of the U.S. presidential election as a major determinant of the energy sector’s direction. “To be determined,” said Rick.

Either way, added Jamie, “We’re going to be very busy for the next 12 to 18 months.”

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