Oil & gas M&A had been in the process of picking up the pace in the aftermath of the last oil-price crisis when it was beset by the advent of a global pandemic. Now, as it looks to get back on track after the impact of COVID-19, progress could be thwarted by the Russian invasion of Ukraine. Industry sources have told Dealspeak that the APAC energy sector faces a bumpy ride when it comes to dealmaking in the months ahead.

In little more than three weeks, developments between Russia and Ukraine have already cast a cloud over the recovery path of oil & gas M&A, driving oil prices to multi-year highs and hitting USD 112/barrel (bbl) on 12 March. Some market commentators believe prices could run away to USD 200/bbl as the conflict escalates.

Three strikes: Dealmakers wary after recent bruising history 

APAC dealmakers are now likely to be doubly cautious of markets being further disrupted by unexpected events, and concern abounds that the encouraging M&A data of 2021 could prove to be a flash in the pan.

Oil & gas M&A last year surged to a total deal value of USD 36.3bn across 86 deals, marking a significant bounce back from USD 7bn across 102 deals in 2020. Cross-border M&A deal value in 2021 also jumped, hitting USD 12.1bn from 17 deals vs the previous year’s USD 1bn across 26 deals. Both saw their highest levels since 2017, according to Dealogic data.

Two acquisitions in 2021, that of Woodside Petroleum acquiring BHP Petroleum International for USD 13.7bn and Santos snapping up Oil Search for USD 8.8bn, made it into a list of the 10 largest deals since 2005, suggesting brighter times ahead.

But Russia’s war in Ukraine raises prospects of APAC oil & gas M&A taking a third hit in five years, before its nascent recovery from COVID-19 and the previous oil-price crisis can fully take hold.

Prior to the dramatic fall-off in deal value in 2020, slumping to USD 7bn from USD 12.7bn in 2019 and triggered by the pandemic as well as oil prices being in freefall to USD 20/bbl, the market posted its second-lowest performance in 2017, as deal value ebbed to USD 8.4bn across 130 deals, hit by an oil-price decline that started in early 2014.

While low oil prices resulted in M&A bargains between 2014 and 2016, a backdrop of an industry short on funding and liquidity proved unsustainable, and this manifested in an avalanche of consolidation in 2017, as companies battled to survive.

Turn on the taps: Pipeline of cross-border deals is filling up 

Domestic M&A among major APAC energy players such as Australia, China, India, Japan and South Korea has been resilient over the past two years. This is expected to remain the case, as dealmakers’ focus stays at home during these unpredictable times elsewhere in the world.

M&A activity in the region is likely to ease, particularly across borders, and the pandemic highlighted difficulties in conducting due diligence ahead of cutting deals even before the Russia-Ukraine war, but domestic tie-ups are more likely to dodge the bullets.

Deals in the APAC pipeline include: Australian oil & gas group Santos selling its Pikka project in Alaska, with PNG LNG and Otto Energy reportedly set to take on strategic investors, as well as private-equity funds; Chinese state-owned Shenzhen Gas Investment exiting a 100% interest in Yixian Shenran Natural Gas; and Shandong Jihua Gas selling a 40% stake in Shandong Jihua Derun Gas.

With China’s energy sector continuing its ownership reform trend, the country’s oil & gas industry is likely to remain active in M&A. In Australia, too, after reaching a 16-year high for domestic M&A deal value in 2021, the market is expected to maintain its frenetic pace in 2022.