Midstream M&A is primed for a resurgence this year if commodity prices stabilize and public markets again embrace oil- and gas-related assets, Ernst & Young (EY) said in its annual review of global energy transactions.
Of course, the analysts added, if volatility and uncertainty continue to shadow the pricing environment, the downward trend could continue.
Midstream M&A dipped 8% to $149.4 billion last year from 2014’s record, with 84% of all deals and 97% of the total value related to activity in the U.S. and Canada. Transactions started strong in the first half of the year but stumbled as the impact of low commodity prices was more keenly felt.
EY noted that midstream companies reacted by:
- Focusing on capex rationalization;
- Employing “just-in-time” investments; and
- Delaying capex until a firm outlook on commodity prices emerges.
EY’s analysts were intrigued by Mexico’s new FIBRA E public structure that is designed to hold the country’s midstream and infrastructure assets. The structure is in many ways modeled after U.S. MLPs and may allow Mexican markets to raise funds for that country’s needed midstream buildout.
Stress experienced by companies with over-leveraged capital structures will translate into opportunities for larger companies with strong balance sheets, the review said. Continued low oil prices this year “could potentially signal an uptick in M&A as sellers with lofty price expectations realign and buyers become less opportunistic and more strategic in their view,” the analysts wrote.
The report also noted that a wide range of financial players have renewed their interest in energy. EY expects numerous bolt-on opportunities for funds already invested in the sector and flush with cash.
Joseph Markman can be reached at jmarkman@hartenergy.com.
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