Oil and gas M&A activity – green shoots emerging

Our energy industry experts, together with our Mergers and acquisitions (M&A) specialists, have analysed transaction trends in the oil and gas industry, where activity is heating up as the energy industry looks to a bright future.

Introduction

From the lows of the Covid-19 pandemic and resultant lockdown, M&A activity in the oil and gas industry has rebounded strongly as it tracks back to pre-pandemic levels.

Energy crisis and oil price driving activity

Naturally, M&A activity within the oil and gas industry is linked to the oil price, both directly as a driver of value but also as a proxy for investor confidence. With the onset of the energy crisis, in part due to the Ukraine/Russia conflict, the increasing oil price has precipitated an uptick in deal activity. With that said the current conflict in the Middle East will create short term uncertainty and price fluctuation, which in turn is likely to impact on buyer confidence and deal levels.

Indeed, the energy crisis has further contributed to this increase in deal activity as it has led energy companies to consolidate, in order to protect themselves through increased scale as well as building supply chain resilience. 

Significant deals noted in recent years include UK-based upstream oil company, NEO Energy’s acquisitions of various assets in the North Sea and the Greater Buchan Area. As well as Harbour Energy’s landmark acquisition of Chrysaor’s North Sea assets in 2021, for c£3.6 billion – one of the industry’s largest acquisitions in the past 15 years. 

The market has also attracted a mix of national and foreign trade and financial buyers, such as Delek Group, the Carlyle Group, and Rubicon Partners, underscoring the value of oil and gas assets in the UK. 

Private equity remains a constant influence

With that said, corporate acquirers remain the main protagonist in the deal market, accounting for broadly 60% of all deals currently. This trend is expected to continue, with major operators sitting on cash piles due to recent years of strong trading and high profits, driven off the back of the oil price. 

Some are returning this value to shareholders, whilst others are using their war chest to fund strategic M&A.

Access to funding is of course key and with bank debt becoming more expensive, private equity remains a legitimate alternative option for shareholders and management teams looking for an injection of funds to realise some value now and de-risk, facilitate transition of ownership and accelerate growth. 

It is worth noting that the transition to clean energy is also impacting investor appetite, with many seeing ESG move up the boardroom agenda. 

Indeed, some legacy specialist energy investors, with a particular concentration of oil and gas assets in their portfolio, have begun to shift away from ‘dirty’ energy towards clean / alternative solutions. A lot of this driven by the agenda of the investors into these funds. 

The ESG angle is a key consideration for generalist private equity investors in the space. As a result, many traditional oil field services businesses coming to the market are presenting a green or clean future growth plan. These need to be carefully considered and clearly articulated to ensure they are deemed credible, and investors believe in the story. Beginning to deliver against this green plan and having a track record of success to point to of course further adds to this credibility.

Clean energy transition

More broadly, deals in the energy industry overall have grown strongly in the same period, with Mergermarket recording 1,241 deals in 2022 for the global energy industry – the highest on record. At the same time, oil and gas has accounted for proportionally fewer deals; since 2020, c20% of all deals down from c60% in the late 2000s and early 2010s.

As highlighted above, it comes as no surprise that the big driver behind the growth in non-oil and gas deals is alternative energy, reaching a peak number of deals in the last year. 

Looking forward

Looking forward, the drivers are in place to sustain the oil and gas industry’s strong transactional performance as it seeks to return to pre-pandemic levels; with acquisitive corporates with strong balance sheets leading the charge. 

More broadly, the energy industry overall will continue to see growth, driven by the clean energy transition. Many traditional oil field service companies are repurposing their skills and technology towards this transition (including decommissioning of oil rigs, for instance). As always, first mover advantage is key, and we are already witnessing some tremendous success stories with massive future potential, harnessed off the back of the traditional oil and gas market.

Editor note: at the time of writing (6th October 2023), the conflict in Israel-Gaza had not yet commenced. There will be inevitable ramifications on a geo-political scale as well as impacts on energy and instability in the oil price not captured within this analysis.

How RSM can help

RSM is a leading audit, tax and consulting firm globally,  with more than $7 billion revenue across 120 countries. In the UK, RSM has over 4,000 professionals providing more than 50 specialist service lines, including a dedicated corporate finance team providing specialist deal services solutions to the middle market. In recent years RSM UK has advised on a number of energy industry deals including the sale of Aberdeen-based Tendeka, a provider of innovative technology, products and services to the oil and gas industry, to TAQA (Industrialization & Energy Services Company) a global oil field services provider, in March 2022.

For further information and to discuss how this may impact your oil and gas business, please contact Grant Morrison.