Oil & gas companies have been refocusing the M&A and dealmaking activity towards clean energy technologies and initiatives, and away from traditional hydrocarbon-focused investments, according to a new study released today by professional services firm Deloitte.
The report, “Oil and Gas M&A Outlook 2023: Pivoting for Change,” found that oil and gas M&A activity fell to an 18-year low 3% of industry market cap in 2022, despite the presence of typical deal drivers including record energy prices and low valuations.
According to report co-author Amy Chronis, Vice Chair – US Energy & Chemicals Leader at Deloitte, this phenomenon indicates that “the old drivers of M&A activity, such as investing and acquiring for growth and increasing market share, seem to have been replaced by new drivers,” which in addition to energy security and operational efficiency, include energy transition and ESG-focused considerations.
Chronis added:
“Over the last two years, the O&G industry has moved from engaging in M&A to build resilience amid COVID-related uncertainty to building a new core—whether that be low-carbon O&G development or expansion into cleaner energy solutions. In the coming year, these drivers are expected to continue impacting M&A decisions.”
Supporting this conclusion, the report found that hydrocarbon-focused M&A fell particularly sharply in 2022, declining 35% in the year, while clean energy M&A grew to a record $32 billion, up roughly 4x over the prior year, accounting for a 15% share of total deal value by oil and gas companies in the year. Within the clean energy, biofuels and combined wind & solar assets accounted for nearly 80% of the M&A deals.
The shift in focus extended into the joint venture space as well, according to the report, with nearly a third of JVs by oil and gas companies in 2022 focused on low-carbon initiatives, up from only 13% in 2020. The highest number of clean energy JVs related to hydrogen and related fuels, including ammonia, nitrogen, and sustainable aviation fuel, indicating a broadening focus from wind and solar to a growing mix of sources, fuels, and carbon-capture programs.
The report also indicated that ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. appears to be a factor in M&A decisions, with more than 70% of deals in the space over the past several years including sellers with higher ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. scores than the buyer, with the effect particularly pronounced in bigger deals.
Report co-author Melinda Yee, Partner, oil and gas transactions and M&A Leader at Deloitte, said:
“The M&A playbook has changed. Oil prices are no longer a major driver of M&A activity. Instead, the industry is striking a balance between energy security and sustainability. Many oil and gas companies are positioning themselves for long-term growth by turning to clean energy and partnerships with strategic investments.”
Click here to access the report.
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