The number of oil and gas M&A deals struck globally dropped by 13% in 2017 to reach a five-year low, a new report said.
The value of deals also fell last year − to $343billion from $390billion in 2016, according to EY.
Andy Brogan, EY Global Oil & Gas transactions leader, said aversion to risk and a continued focus on internal performance improvement may have played a part.
However, upstream deal value climbed to $172billion, characterized by a strong first quarter and outpacing average deal value across the rest of the year by more than 82%.
North America dominated upstream activity, with deal value up 19% to $94billion in 2017.
Downstream deal value declined 12% to $59billion in 2017, with the number of transactions also dropping 16% compared with 2016. This reflects less transaction activity and no movement in average deal size.
Mr Brogan predicted companies would feel the need to “reposition” their portfolios and seek economies of scale, prompting an increase in M&A activity this year.
Increasing activity among private equity players and the adoption of more innovative transaction structures are expected to drive upstream M&A in 2018, as joint ventures between independents become increasingly common and healthier balance sheets encourage growth the report finds.
Mr Brogan added: “A lack of blockbuster deals in 2017 highlights the industry’s sense of caution in the post-downturn era.
“But buyer and seller expectations have been narrowing and a robust pipeline of actionable M&A opportunities is now available, underpinned by an increase in the oil price, decreasing valuation gaps and improving market sentiment.
“We expect these trends to continue to prevail in 2018, with M&A activity flowing from portfolio optimization, increased access to capital markets and value chain integration.”