The number of deals in the U.S. oil and gas industry declined sharply in August, with only 21 deals against 32 in the year-ago month and a value of $12.58 billion instead of $21.55 billion, according to S&P Global Market Intelligence. But analysts caution about drawing conclusions from this data.
“One month’s or one quarter’s data do not make a trend,” says Pavel Molchanov, energy analyst at Raymond James. “The level of oil prices is what drives M&A in the oil and gas industry.”
The S&P data tracks whole-company and minority stake deals. The August data includes the $9.13 billion acquisition by Phillips 66 for an additional 43.49 percent of DCP Midstream, the biggest deal in 2022 so far.
Molchanov adds that the general impact of higher interest rates and looming recession, along with the Ukraine war, have dampened M&A activity in general. Longer-term, however, the level of oil and gas deals is bound to change.
“One of the megatrends is the decline in exposure to fossil fuels,” Molchanov says. “This is a key long-term perspective.”
Deals in renewable and clean-technology continue at a “robust” pace, he adds. Electric vehicle deals alone account for consistent M&A activity. The SPAC acquisition of Next e.Go Mobile, an electric light-duty vehicle provider, for $913 million, announced in July, and Aptiv plc’s acquisition of EV components provider Intercable Automotive Solutions in September for $595 million were among the biggest.
Molchanov notes that big oil companies like Shell, BP, and Chevron, as well as giant tech companies like Siemens, Schneider, and Honeywell are buying into renewables and clean technology all over the world.
“In the long-run, the only source of electric power in Europe is renewables,” he says. “It will grow dramatically by the end of the decade.”