Mergers across the U.S. oil and gas industry totaled nearly $200 billion in 2016 as crude prices stabilized and major producers agreed to output cuts, a new report from PwC shows.
The auditing firm expects the tailwinds that lifted M&A in the final quarters of 2016 to carry through into 2017 and keep the deals flowing.
"As we move into 2017, deal-makers are in high gear, with a green flag and a full tank of gas," PwC said Tuesday in a quarterly report.
Deals in 2016 reached $195.7 billion in the second year of the oil price downturn, just 0.2 percent below 2015's level. Activity was moribund in the first quarter, when crude prices struck 12-year lows, but rebounded in the following quarter as prices bounced off the bottom.
M&A took off in the third quarter as international benchmark and U.S. West Texas Intermediate oil settled in a range between $40 and $50 a barrel, and OPEC revived the idea of cutting production.
"Despite a timid start in the first quarter, 2016 ... M&A ended on a high note, mimicking increased optimism for the overall oil & gas sector," Doug Meier, U.S. oil and gas sector deals leader at PwC, said in the report.
The recovery came as capital became more readily available in the high-yield debt and initial public offering markets, PwC said. Buyers and sellers bridged the gap between what they were willing to pay and accept for assets — a point of contention throughout the downturn.
In the final quarter, the upstream exploration and production sector continued to dominate dealmaking. Drilllers have paid princely sums for acreage in the Permian basin in Texas and New Mexico, where the low cost of production allows them to turn a profit even with prices at half of their 2014 peak.
The midstream sector, which includes pipeline transportation and storage firms, ended the year with $84 billion in deals, due largely to megadeals worth $1 billion or more. Those included the nearly $20 billion merger announced by Sunoco and Energy Transfer Partners, the company behind the disputed Dakota Access Pipeline.
Oilfield services M&A came back to life in the final quarter, reaching $29.1 billion. The headline deal was General Electric's merger with Baker Hughes, whose tie-up with Halliburton ran aground earlier in the year due to regulatory concerns.
The fourth quarter also saw the first initial public offerings of U.S. energy companies in two years. Extraction Oil & Gas earned a $2.4 billion valuation in its first day of trading in October and was followed by Mammoth Energy Services and Wildhorse Resources Development.
PwC includes only deals valued at $50 million or above in its quarterly oil and gas report. Houston-based oil and gas research firm PLS previously reported that U.S. dealmaking in the upstream sector reached $69 billion in 2016, including smaller deals.