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Merger Mania Is Over: Oil Deals To See Quietest Year In Decades

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Merger Mania Is Over: Oil Deals To See Quietest Year In Decades

Extracts

Sir Winston Churchill once admonished leaders to never let a good crisis go to waste, and Big Oil has rarely failed to heed the advice. Under normal circumstances, energy downturns have created perfect opportunities for deep-pocketed oil and gas heavyweights to land prime assets on the cheap. A good case in point: the last oil bust of 2016 was followed by a sizable number of huge M&A deals in the sector including the $60B tie-up between Royal Dutch Shell (NYSE:RDS.A) and BG Group, Canadian Oil Sands and Suncor EnergyEnergy, as well as a handful that fell through including the proposed merger between Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BKR).

But Big Oil has now ditched that old playbook and appears largely disinterested in some M&A action this time around.

The current year is shaping up as one of the slowest in the oil and gas industry as far as mergers are concerned. According to data compiled by Bloomberg, so far there’s been $86 billion of takeovers announced, pending or completed in the current year, on track for one of the most lackluster years for energy tie-ups in two decades.

M&A disaster

Oil executives appear too gun-shy to pull the trigger on the numerous distressed assets that have become available after the latest oil downturn–and for a good reason.

After all, the last M&A wave turned into a disaster for many of the acquiring companies.

Last year, Royal Dutch Shell cut its dividend from US$0.16 per ordinary share to US$0.4, good for a 66% cut. That marked the first time the company cut the dividend since WWII, a testament of just how severe the oil massacre has been, which is what Shell blamed in its press release. However, there could be another culprit to blame for the dramatic cut: the company’s 2016 acquisition of BG Group, which set it back $60B.

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