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M&A News In The Energy Industry Sector

By Roy Graham | Oct 13, 2017

The report below gives a good overview of the third quarter M&A activity in the Energy Industry Sector. M&A activity for North American based target companies in the Energy sector for Q2 2017 included 44 closed deals, according to data published by industry data tracker FactSet. The average transaction value was $470 million.
One of the notable deals of the quarter closed in April when NOVA Chemicals Corp, a subsidiary of state-owned Mubadala Investment Co, acquired Williams Olefins LLC, a subsidiary of Williams Partners LP and ultimately owned by The Williams Cos, Inc., for US$2.1 billion in cash. The transaction allows NOVA Chemicals Corp entry to the US Gulf Coast market. NOVA Chemicals Corp. produces plastics and chemicals. Williams Olefins operates as a holding company with interests in the production of natural gas and petroleum products.

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Energy Sector Q1 M&A News

By Roy Graham | Mar 08, 2017

energy sectorM&A activity for North American based target companies in the Energy sector for Q4 2016 included 118 closed deals, according to data published by industry data tracker FactSet. The average transaction value was $271 million.

With oil prices making a slow recovery, US oil production activity is becoming increasingly concentrated in the Permian Basin. Spanning parts of western Texas and southeastern New Mexico, the Permian Basin’s highly productive fields and substantial transportation infrastructure make it one of the few places for profitable oil production when prices are relatively low. (US oil prices, which were over $100 per barrel as recently as August 2014, dropped below $30 per barrel in early 2016 and averaged $45 per barrel in the first week of November 2016.) The Permian now holds nearly as many active oil rigs as the rest of the US combined. Read more »


M&A News | Energy Sector

By Roy Graham | Dec 02, 2016

M&A News | Energy SectorM&A News | Energy Sector – Oil producers can better withstand downturns in oil prices by looking for efficiencies in their operations. As the oil industry continues to struggle, some bright spots are emerging as producers find ways to boost efficiency enough to make up for low per-barrel prices. Companies have to carefully manage well productivity to be sure per-barrel costs don’t exceed market value. Three shale producers recently surprised the market by announcing productivity gains without higher costs or concessions from vendors. Factors from linking cost cutting and executive pay to boosting the amount of sand used in fracking to design changes have led to doubled production and a 40% drop in costs, according to Reuters. While rig count has fallen in North Dakota’s Bakken Shale oil region in the last six years, production per rig has risen from around 200 barrels a day in 2010 to just below 800 barrels per day in 2016, according to The Wall Street Journal.

New rules from the FAA authorizing drone flights for businesses, with limitations, could open up a whole host of uses for drones within the oil and gas field services industry. The rules require drones to stay in view of the operator but the unmanned craft could be used to inspect oil field equipment, help map fields, monitor assets, and take on dangerous tasks without risk. Oil and gas companies around the globe have increasingly been using drones for a variety of operations.

Industry Indicators

  • The average US retail price for diesel and regular gas, which influences profitability for oil and gas companies, fell 4.7% and 7.3%, respectively, in the week ending September 12, 2016, compared to the same week in 2015.
  • The spot price of crude oil, which affects profitability for oil and natural gas operations, rose 1.8% in the week ending September 9, 2016, compared to the same week in 2015.

Posted by Roy Graham.

Read the Entire Energy M&A 4th Quarter Newsletter Here


Energy Sector M&A News

By Roy Graham | Aug 18, 2016

energy sector m&a newsEnergy Sector M&A news for North American based target companies in the Energy sector for Q2 2016 included 162 closed deals, according to data published by industry data tracker FactSet.  The average transaction value was $113 million.

Pressured by continued low oil prices and a global supply glut, several leading US oil explorers are selling more than $4 billion in assets. For companies still holding cash, it could be time to buy. Anadarko, Chesapeake Energy, Noble Energy, and Statoil ASA recently announced plans to sell assets totaling about $4.3 billion. Marathon Oil has already sold $1.3 billion worth of assets. Meanwhile, US rig counts continue to decline, as oil prices remain at less than half of their 2014 peak.

Utilities in several US states are piloting residential smart energy storage programs to reduce emissions and generation costs during peak times. Companies in Kentucky, New York, and Vermont — Glasgow Electric Plant Board, Consolidated Edison, and Green Mountain Power — are installing smart energy storage devices in selected customer homes. The devices capture power from the grid during periods of low demand and release power during high-cost peak demand periods, reducing the need to supply power from traditional generation plants. All three programs use software to remotely manage the residential units as if they are a single power source, according to UtilityDIVE; the model is called a virtual power plant. The utilities are partnering with device manufacturers Sunverge, SunPower, and Tesla Motors.

Industry Indicators

  • The average US retail price for diesel and regular gas, which influences profitability for oil and gas companies, fell 14.2% and 20.5%, respectively, in the week ending July 11, 2016, compared to the same week in 2015.
  • The spot price of crude oil, which affects profitability for oil and natural gas operations, fell 10.8% in the week ending July 8, 2016, compared to the same week in 2015.

Posted by Roy Graham.

Read the Entire Energy M&A 3rd Quarter Newsletter Here


Energy Industry M&A News

By Roy Graham | Apr 28, 2016

energy industryOil prices increased roughly 60 percent since late January. However, the global over-supply of oil worsened in March. According to data from the Energy Information Administration (EIA), the net surplus (supply minus consumption) increased to 1.45 million barrels per day in March. In February, the surplus increased 270,000 barrels per day. This is not a positive signal for an extended price recovery.

On the public markets, the Energy industry started out in decline with the rest of the market, but picked up significantly heading into the second quarter.

If more exploration and production companies restructure under bankruptcy protection, attractive assets may be available to the survivors at a discount. As many as one-third of US oil and gas producers may seek bankruptcy protection by mid-2017 if oil prices remain near current levels, according to a forecast by Wolfe Research reported by The Wall Street Journal. A host of factors, from China’s economic slowdown to the dollar’s rise to producers themselves continuing to flood the market, have pushed oil prices lower and lower since mid-2014. Prices below $40 per barrel are viewed as unsustainable for the vast majority of US operators, especially those with significant debt loads. 

With oil and gas prices remaining well below highs reached in mid-2014, major companies are cutting back on new exploration and drilling fewer wells. Only six new oil and gas development projects were approved in 2015, according to research from Morgan Stanley reported by The Wall Street Journal. Normally companies race to add to their reserves through exploration as fast as they pump oil from the ground. But the current glut of supply and corresponding low prices are discouraging companies from investing in exploration. The number of drilling rigs in the seven key US tight oil and shale gas regions –sources of the vast majority of recent production growth – has declined sharply, according to the US Energy Information Administration.

Posted by Roy Graham.

Read the Entire Energy M&A 2nd Quarter Newsletter Here


Energy News From the M&A Sector

By Roy Graham | Mar 17, 2016

Energy Oil PumpEnergy News

As many as one-third of US oil and gas producers may seek bankruptcy protection by mid-2017 if oil prices remain near current levels, according to a forecast by Wolfe Research reported by The Wall Street Journal. A host of factors, from China’s economic slowdown to the dollar’s rise to producers themselves continuing to flood the market, have pushed oil prices lower and lower since mid-2014. Prices below $40 per barrel are viewed as unsustainable for the vast majority of US operators, especially those with significant debt loads.

Oil and gas companies are revising production targets and cutting capital spending amid a global slump in oil prices. Royal Dutch Shell, which posted a $6.1 billion loss in third quarter 2015, cut its losses related to some major projects, resulting in $7.9 billion in charges. The company has decided to abandon an Arctic exploration well off the coast of Alaska, as well as construction of an oil sands project in Western Canada. Although Chevron and Exxon Mobil were profitable during Q3, both companies announced plans to cut capital spending in an effort to weather the price slump; Chevron will also cut up to 10% of its workforce, according to The Wall Street Journal. The US Energy Information Administration projects Brent crude prices will remain below $60 a barrel until mid-2016. Prices averaged more than $100 a barrel as recently as August 2014.

Removal by the US Interior Department of some of the remaining obstacles to drilling in the Arctic creates a new market for oil and gas field services companies, but key restrictions remain. Arctic oil drillers must keep active rigs at least 15 miles from wildlife, which could make transport between drilling sites more burdensome.

Industry Indicators

  • The average US retail price for diesel and regular gas, which influences profitability for oil and gas companies, fell 28% and 7.4%, respectively, in the week ending January 18, 2016, compared to the same week in 2015.
  • The spot price of crude oil, which affects profitability for oil and natural gas operations, fell 29% in the week ending January 8, 2016, compared to the same week in 2015.

Posted by Roy Graham.

Read the Entire Energy M&A 1st Quarter Newsletter Here


M&A News From the Energy Industry

By Roy Graham | Dec 10, 2015

energy industryThe US Interior Department recently removed some of the remaining obstacles to Arctic drilling, albeit with a few caveats. Arctic oil drillers must keep active rigs at least 15 miles from wildlife, which could make transport between drilling sites more burdensome. The Arctic contains about 20% the world’s undiscovered oil and gas reserves. Companies, like Shell Oil, can drill into Arctic oil-bearing zones, but not until spill response equipment is available. The equipment needed is currently undergoing repairs and may not be ready until after the arctic drilling season ends. Shell needs spill prevention equipment like a capping stack before the company can drill into the deeper formations, according to The Guardian.

A number of Wall Street analysts are predicting that crude oil is set to stay below $60 a barrel through next year as the market and energy industry struggles to recover from over supply. A survey of 13 investment banks by The Wall Street Journal cut their average forecast for Brent crude, the international price gauge, by $9 to $58.70 a barrel, compared with last August’s survey. For West Texas Intermediate, the U.S. oil marker, the average forecast is for $54.40 a barrel, also down $9 from August.

Industry Indicators

  • The average US retail price for diesel and regular gas, which influences profitability for oil and gas companies, fell 30.9 percent and 27.13 percent, respectively, in the week ending October 13, 2015, compared to the same week in 2014.
  • The spot price of crude oil, which affects profitability for oil and natural gas operations, fell 45 percent in the week ending October 9, 2015, compared to the same week in 2014.
Posted by Roy Graham.

What Business Owners Must Know About Private Equity

By Roy Graham | Dec 08, 2015

Private EquityThe PE community has established an impressive record of success in both partnering with business owners to grow the value of their businesses and in returning high rates of returns to their own investors.  Private equity recapitalizations have proven in the aggregate to be a valuable vehicle by which a business owner can capture a portion of his business’s value today while bringing in a savvy business partner who can help create greater business value going forward.  However for a business owner to reap the greatest benefit from private equity it is essential to understand how private equity operates and to use this knowledge to determine how best to find a PE partner.

A paper published earlier this year by Harvard Business School and authored by Gompers, Kaplan and Mukharlyamov provides interesting insight into the operations of private equity via an extensive survey of 79 private equity investors.  When we study these findings, we can glean some valuable takeaways that can help business owners learn how to smartly capitalize on PE investment. Read more »


Energy Sector M&A News

By Roy Graham | Sep 03, 2015

Wind turbineWhen oil prices fell in late 2014 many companies in the energy sector dealt with the issue by thinning out operations – cutting overhead, limiting capital expenditures and reducing staff. The moves were done cautiously as no one knew how long the drop would last. Now, more than half a year later, the environment is still tenuous, which may lead to a number of distressed sales as business owners rely on M&A as a means to avoid trouble with creditors.

The energy sector performed the best of all sectors in the second quarter of 2015. A composite of energy commodities rose 13.81% and was the strongest commodity sector in the futures markets for Q2. However, there has been a dramatic change in Q3 as the price of oil has drifted below $40 per barrel. Brent crude oil spot prices decreased by $5 per barrel in July to a monthly average and fell even further at the end of July and into early August. The current values of futures and options contracts continue to predict a prominent level of uncertainty in the price outlook, which will most likely lead to a very cautious environment for perspective acquirers. Some experts predict that the current record level of inventory will cause prices to settle back down again, and that 2015 will end with West Texas Intermediate (WTI) prices at about $50 per barrel. However, with so much volatility and uncertainty most experts are not willing make predictions.

Posted by Roy Graham.

Read the Entire Energy M&A 3rd Quarter Newsletter Here


M&A News in the Energy Sector

By Roy Graham | May 01, 2015

Oil BarrelsFalling oil prices in the energy sector are affecting valuations. Many owners are reluctant to test the M&A market as valuations have dipped significantly over the past six months.  Buyers, on the other hand, see the current market climate as an opportunity to acquire good companies at reasonable multiples. According to data published by Fitch Ratings, low prices for an extended period could lead to more acquisitions of smaller, potentially distressed companies by larger ones, while reducing the major oil companies’ ability to finance their operations through disposals. The combination of lower operating cash flows, fewer disposals and some potential acquisitions could put major oil companies’ credit metrics under pressure. However, the impact would depend on how they respond, as some might choose to cut capex and exploration expenses, while others might decide to operate with higher leverage, which could lead to downgrades if sustained. There has been a large number of private equity backed energy companies formed over the past five years capitalizing on the fracking trend. Many of these companies have significant debt to service, which could spark a flurry of M&A activity – even if multiples are lower than many of the sellers would like.

Industry publication World Oil’s annual forecast and review predicts that West Texas Intermediate crude oil prices will average about $55 per barrel in 2015. If this comes to fruition, exploration projects that require crude prices of more than $50 per barrel to break even, such as Arctic drilling and crude exploration in Canada, will likely lose funding. Shale drilling in North America is also expected to decline. New well activity in Texas, which leads the US in oil production, is expected to fall nearly 24 percent in 2015. Louisiana, North Dakota, and Oklahoma are also expected to see declines. Overall, US drilling is forecast to fall by nearly 20 percent in 2015.

Posted by Roy Graham.

Read the Entire Energy M&A 2nd Quarter Newsletter Here