Global deals worth almost US$443 billion were concluded in 2014, up more than 69% on 2013. The total number of deals, on the other hand, fell by 20%, Ernst & Young said in its annual Global oil and gas transaction review.
Upsteam transactions - those relating to exploration and drilling – rose by 21% and continue to account for most of the global deal volume, but deal value in the segment fell below 50% for the first time, Ernst & Young said.
In "non-upstream" segments, however, the situation was reversed. Deal value rose by 88% in the downstream refining and processing segment, by 115% in midstream, which covers transportation, storage and wholesale marketing, and 242% in oilfield services. The number of deals in both midstream and oilfield services, however, dropped, Ernst & Young said.
Activity has varied between regions. While the Middle East has substantial oil and gas reserves and production. for example, the number of transactions was low and only the upstream segment saw deal activity, Ernst & Young said.
In that segment, the number of transactions fell from 31 to 12, but total value was only slightly down at $600mn, the report said.
In Asia. overall activities were slightly down, with deal value for all segments at US$10.4bn compared to US$11.1bn the year before. Transaction volumes fell from 101 to 92.
In Europe, deal volumes fell in all areas except oilfield services. At 146, this was 40% lower than the 243 deals in 2013. Commodity price movements, capital market dynamics and regional issues like the Scottish independence referendum all had an impact, Ernst & Young said.
Ernst & Young noted four main trends for the year: bigger deals, less acquisition spend; continued high interest in US "unconventional assets" (such as oil sands or shale oil) and continued expansion of private equity interest in the sector.
Acquisitions are likely to rise again next year, however, as companies try to improve their portfolios to focus on high returns, the report said. Underperforming assets are likely to be cut, with "opportunistic acquisitions" of under-valued businesses. In a similar vein, there will be an increase in investments in growth markets.
"In short, particularly as the year goes on, we expect to see more motivated sellers and more consensus on valuations. Consolidation will be driven by over-capacity, intense margin pressures and generally weaker capital markets," Ernst & Young said.
The number of "failed transactions" was low, with only 20% of announced deals not finding a buyer, the report said.
In 2014 large numbers of sellers were looking for joint venture partners and buyers and funders of assets in Africa. Due to the high number of investment opportunities, however, many sellers struggled to complete deals, Ernst & Young said.
The fall in the price of oil also affected investment, and deals volumes and values fell significantly compared to the “bumper year” of 2013. There were 95 deals in 2014, down from 146 in 2013, with US$8.7bn of reported value compared to US$22.2bn.