U.S. oil prices fell to an all-time low last week, indicating a deep recession for the oil and gas industry that threatens to push dozens of companies into bankruptcy and drive M&A in the oilfield services sector—but don’t expect to see any deals in the near-term, said an analyst with Rystad Energy.

“The wild day-to-day swings in the financial markets” are likely to hamper M&A deals, making it hard for contract negotiations to take place in the near-term, Binny Bagga, senior analyst of energy service research at Rystad Energy, said during a recent webinar. Bagga cited TechnipFMC Plc’s decision in March to postpone its planned spinoff due to turbulence in financial markets linked to the coronavirus outbreak as an example.

“Many such deals will be impacted going forward,” she added.

A drop in A&D activity has already been seen in the upstream space. In first-quarter 2020, international upstream M&A deal value plunged to $5.7 billion. By comparison, first-quarter international upstream M&A deal value has averaged $17.3 billion for the past three years, according to financial data, research and advisory firm Finbrook.

“Most of the M&A deals in the past five quarters were driven by strategic rationings, either to expand products and services or geographic reach, which may change in the near future with lenders or creditors taking control of the struggling companies,” Bagga said.

Rystad Energy Key Themes to Shape Future Energy Services M&A Graph

Due to considerable cost-cutting by E&P operators and delayed licensing rounds by many governments in response to the low-price environment, Rystad expects exploration spending to drop by more than 20% from its 2019 levels. At least 12% of the decline will be seen by offshore exploration drilling alone.

According to Rystad, the seismic industry will suffer the most from scrapped investment plans by E&P companies. Assuming a price scenario of $20/bbl, revenues of seismic companies are estimated to drop by 77% compared to 2019 levels.

However, Bagga described drilling contractors, particularly offshore drillers, and North American shale producers as being in the “danger zone” of facing bankruptcies and financial restructurings due to high debt and lack of liquidity. Additionally, she said the pressure pumping sector, which was dealing with pricing pressures even before the market crisis, will also see a high volume of deals and liquidation in the near future.

By second-quarter 2020, Bagga expects private equity to begin taking charge of depressed companies, though focus will be more on maintaining existing portfolios before any capitalizations on reduced market valuations are made.

Lastly, she said one of the key themes she sees dominating future deals in the service sector is investment in digital technologies.

“I definitely feel there will be more action in the digital space as companies invest in new technologies to increase efficiency,” she said, adding that energy transition opportunities and divestment of noncore assets will also impact future M&A deals.