On Monday, data showed that the mergers and acquisition in the US energy sector were sluggish in the third quarter of 2020 at the worst in ten years as most producers remain hesitant to spend amid the oil price crash.
According to energy consultancy Enverus, in the July-September period, there were only 28 deals with a disclosed value signed with USD21 billion in value, but up by 19.4% year-on-year.
The massive power behind the increased value were the Chevron Corp.’s acquisition of Noble Energy Inc. and the merger between Devon Energy Corp. and WPX Energy Inc. These two deals, according to Enverus, valued at USD18.63 billion, making up nearly 90% of the total deal.
Enverus analyst Andrew Dittmar said that at the moment, challenge remains for market players to find the right asset and balance sheet fits for accretive deals and it would likely take several more years for consolidation to play out.
Going forward, Enverus foresaw that more potential deals in 2020 would require supports from higher commodity prices and new capital inflows. However, traditional sources of funding like private equity firms have become reluctant to participate.
The consultancy opined that the focus of mergers are likely companies with manageable debt loads. Meanwhile, companies heavily burdened with debt would possibly being left to find their own way, which might lead to a pile of bankruptcy filings.
California Resources Corp. and Oasis Petroleum Inc. are among some of the shale producers walking on thin ice towards the bankruptcy.
