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Upstream M&A deals hit three-year high of $181 billion in 2021

© Photographer: Fairfax Media/FairUpstream M&A hits three-year high.  Photographer: Fairfax Media/Getty Images
Upstream M&A hits three-year high. Photographer: Fairfax Media/Getty Images

Global upstream merger and acquisition (M&A) deals rebounded to pre-Covid-19 levels in 2021, reaching a total of $181 billion, a 70% increase over 2020, Rystad Energy research shows. The total deal value for 2021 was the highest in three years and almost reached the highs seen in 2017 and 2018 of $205 billion and $199 billion, respectively.

Sellers faced difficulty finding buyers during the downturn in 2020, but that ended last year as big deals made a comeback on high commodity prices and a strengthening market, said Rystad. Deals valued at more than $1 billion accounted for $126 billion, or 70%, of the global total. The share of $1 billion-plus deals rose almost three-fold, with 35 such deals announced in 2021 compared with just 13 in 2020.

Out of the $1 billion-plus deals, 13 were company acquisitions together valued at around $65 billion. Two large Australia-focused mergers – one between Santos and Oil Search and another between Woodside Petroleum and BHP – contributed about $22 billion, while other $1 billion-plus company acquisitions were focused on North American assets.

The share of resources sold in deals shifted in 2021, with gas accounting for 56% of all traded resources, a sizeable jump from the 43% share it had in 2020. Oil accounted for 31%, and natural gas liquids came in at 9%. This shift was primarily driven by the North American acquisitions in 2021 but was also helped by deal activity in other regions.

“With a strong potential deal pipeline, continuous pressure on companies to transform amid a global push to lower carbon emissions while simultaneously delivering profitable oil and gas production, and an average oil price of above $60 per barrel expected for 2022, the upstream M&A market is likely to stay active for the foreseeable future,” said Ilka Haarmann, senior analyst at Rystad Energy.

Looking ahead

The deal pipeline is robust, and the upstream M&A market looks set to continue to strengthen, with deals in the US likely to remain a crucial driver of the global deal value, reckons Rystad. Large sales in other regions may also materialise in 2022, particularly if majors continue to streamline their portfolios. While resources under development and production can receive high values in the current environment, buyers appear to be more cautious about discovered resources. Without larger changes in the macroeconomic environment, this discrepancy could persist. However, a further steady increase in valuations for producing and under development resources appears unlikely, judging by historical values, said the consultancy.

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