Shale Patch M&A Frenzy Cools as Oil Price Gets Stuck Below $45

  • Deal activity is down from 2016 and early 2015 levels
  • WTI crude fell 18% this year as outlook remains clouded

Oil Falls to Seven-Month Low

Deals in the shale patch aren’t so hot anymore with oil in the doldrums.

Mergers and acquisitions among U.S. exploration and production companies fell to less than $15 billion in the second quarter from about $23 billion in the first, according to estimates from Bloomberg Intelligence. The number of deals plunged to the lowest since early 2015. In the previous two years deals had increased, not fallen, in the second quarter from the first.

Oil has plunged below $45 a barrel over concerns that a U.S. supply glut isn’t abating, and prices for natural gas are down by more than 20 percent for the year. Subdued deals activity is likely to continue as long as uncertainty persists over the outlook for prices, said Vincent Piazza, a senior analyst for U.S. oil and gas at Bloomberg Intelligence.

"There is a very clouded view on both crude oil and natural gas," Piazza said by phone. "Management teams are taking a more conservative view on M&A activity and that will extend through the end of 2017."

Oil & Gas Deals Cool in Second Quarter

Almost half of the total value of oil and gas deals in the second quarter comes from a merger announced Monday between EQT Corp. and Rice Energy Inc. for approximately $6.7 billion. That deal was focused on the Appalachian Basin, while most M&A activity since last year had focused mainly on the prolific Permian play straddling West Texas and New Mexico.

Oil and gas deals had been on the rise since mid-2015 as explorers sought to streamline operations and sell non-strategic assets to remain competitive during the downturn. That need isn’t so pressing now that many large deals were completed.

"Companies are basically done simplifying their portfolios and combining assets," Brian Youngberg, energy analyst at Edward Jones & Co., said in a telephone interview. "They’re being a little cautious about deploying their capital and are a little scared to take on additional debt or equity."

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