Owing to a collapse of oil prices at the end of 2018, M&A activity in oil and gas has almost ground to a halt after a flurry of deals last autumn. After a decade of funding the expansion of unconventional oil and gas, Wall Street investors have lost patience and want a return on their investment. Andrew Dittmar, Senior M&A Analyst at Enverus, notes, “investors who funded the shale revolution over the last decade have become vocal in advocating for pay-outs and cutting back on providing new capital. That flowed through to limited M&A and a negative reaction to deals for much of the year.”[i]
There are various explanations as to why mergers and acquisition activity has dramatically slowed [ii] but fundamentally they boil down to money. After more than a decade of expansion, investors see a mature industry, with slowing productivity, which should be maximising profits and generating returns rather than pursuing growth. [iii] Wall Street has become less impressed with growing output production figures and more interested in getting a return on investment. This is especially so in an environment in which prices have fallen. For example, natural gas prices fell by 50 percent in 2019 compared to 2018, with little prospect in the near term for any price improvement. In fact, this has led some companies to close natural gas wells, whilst others have paid pipeline operators to take their gas.[iv] Likewise, the collapse in the oil price to between $50 and $60 a barrel with no prospect of serious uplift means there is more focus on restraining spending, maximizing profits and generating returns.