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Today in Energy

July 22, 2015

Beyond Shell-BG, oil company merger activity is down

graph of quarterly merger and acquisition activity, as explained in the article text
Source: Evaluate Energy
Note: Deal values are adjusted for inflation.

The second quarter of 2015 exhibited the largest amount of oil companies' merger and acquisition (M&A) activity by value since fourth-quarter 2012. The announced merger between Royal Dutch Shell and BG Group in early April accounted for $84 billion of the $115 billion quarterly total.

Without the Shell-BG merger, however, the value of deals in the second quarter of 2015 would have totaled $31 billion, $18 billion higher than first-quarter 2015, which was the lowest since at least 2008. The 137 deals announced in the second quarter was the lowest number of deals since fourth-quarter 2008 and 42% below the 235 median quarterly number of deals over the previous two years, indicating less breadth of activity.

Companies often merge with or acquire other companies or their assets in an effort to achieve longer term growth, economies of scale, access to new technologies, diversity of market exposure, or a combination of factors. The buying or selling company may see a valuable opportunity that aligns with its own goals and expectations in deciding to purchase or sell assets. Also, a company may feel that it could benefit from adding new assets that complement its current strengths or by developing expertise in a market segment it currently does not participate in.

M&A deals vary in size and can sometimes take months of negotiating to complete. M&A activity often reflects how market participants view future opportunities. The availability and cost of financing as well as legal factors also play a critical role in the value and amount of M&A activity.

Principal contributors: Jeff Barron, Grant Nülle