In 2016, global oil and gas deal activity recovered from a slow start to the year with help from midstream and oil field services megadeals. According to the EY global oil and gas transaction review, deal value increased in 2016 to $395 billion from $340 billion in 2015, while deal volume fell by 27 percent year-on-year.
Upstream deal value fell 14 percent to $130 billion in 2016, compared to $153 billion in 2015. However, when excluding the Royal Dutch Shell and BG Group megadeal in 2015, upstream transaction activity improved in 2016. The majority of transactions originated in the U.S., with record Permian basin deal volumes. Deal value in North America exceeded $76 billion in 2016, compared to $43 billion in 2015.
While recent distress is expected to have a lasting impact on higher-cost geographies like South America, Africa, parts of the Middle East and Asia, upstream deal activity is expected to accelerate as portfolio-optimization continues. National oil companies will experience pressure from cutbacks.
North America dominated midstream transaction activity despite continued oil price volatility having slowed the boom in shale infrastructure projects. Deal volume in the sub-sector fell 28 percent to 93 deals in 2016, compared to 105 in 2015. However, deal value increased by 29 percent to $146 billion year-over-year. A mild resurgence of capital spending in shale and North American petrochemical and LNG infrastructure projects is expected to lead midstream activity in 2017.
Looking ahead, 2017 is expected to be a stronger year for downstream transactions, with deals motivated by the desire for upstream and downstream integration to create value â a strategy downplayed during the period of high oil prices. Continued financial stress and overcapacity is expected to drive further consolidation in 2017.
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