In the past decade the North American oil & gas sector has seen a period of resilient growth in production. In addition to the production and distribution of crude oil and natural gas, shale oil and gas production has rapidly increased. This, combined with cheap credit, technological advances in production and the rising price of oil, provoked a significant increase in both the number and value of the deals completed in the sector since 2009. However, since 2014 the sector has been affected by a number of issues including the increase in production by OPEC states leading to a supply glut, contributing to significant falls in the price of oil.
As the chart above shows, reported aggregate deal value increased from $5.3bn in 2007, to a high of $32bn in 2012. During the same period the average deal size increased from around $333mn to $723mn. Significantly, there was not a corresponding increase in the proportion of typically higher cost secondary stage deals, with this type of asset involved in approximately 54% of deals in 2007 compared to 60% in 2012. The continued appetite for investment in spite of rising asset prices provides a further illustration of the attractiveness of the sector as oil prices rose, with Brent crude prices more than doubling from 2007 to 2012.
The data also illustrates the significant effects of the contraction in capital markets on the North American oil & gas sector following the financial crisis in 2008. 2009 saw the lowest reported aggregate deal value at $3.5bn, and the total of 30 deals completed is significantly lower than every year examined, prior to 2014 and 2015 YTD. One 2008 deal recorded on Preqin’s Infrastructure Online was anomalous to the deal size observed that year, and provides a sign of the impact of available financing on the sector, something lacking in 2009: a $5.3bn deal for the Natural Gas Pipeline of America. This asset is one of the largest natural gas transmission pipelines in the US, passing through 10 states; the deal included a total transactional debt of $3.1bn.
As in 2009, 2014 and 2015 YTD have seen a large fall in the number of deals completed compared to previous years. Whereas in 2013 66 deals were completed, in 2014 and 2015 YTD 27 and 15 deals have been completed respectively, a decline that mirrors the collapse in the price of oil and the subsequent effect on the viability of oil & gas investment.
With adverse headwinds affecting both producers and distributers across North America, deal flow in the sector is likely to continue suffering. However, production levels remain robust and as further cost reductions and technological advances continue to be applied, it is likely that consolidation in the industry will occur, strengthening the viability and commercial longevity of North American oil & gas infrastructure assets.