Deal activity across the European, Middle Eastern and African energy and natural resources sector is in the doldrums. Transaction volumes and deal count were both down in the first half of this year due to power and utilities transactions taking a pause for breath, with the number of deals the lowest in a decade.

Given their regulatory support, power and utilities frequently buck the trend of wider M&A slowdowns, but on this occasion, several headwinds have caused a loss of confidence in dealmaking.

But there are reasons for quiet optimism.

“The second quarter of 2025 has seen share prices rebound across many European power and utilities companies, which will hopefully drive more confidence back into M&A,” said Adrian Scholtz, partner at KPMG in the UK.

At the same time, oil and gas is making up for some of the inertia on the power side. And while it hasn’t happened yet, persistent rumours around the possibility of BP finally becoming subject to a takeover approach promise to keep dealmakers on their toes in the second half of the year.

Across energy and natural resources, the announced deal count dropped by 26% to 452 in 1H25 from 609 in 1H24, while transaction volumes were down 34% to EUR 47bn in 1H25 from EUR 71bn in 1H24.

“M&A activity in power and utilities has been proportionally less represented across all deal activity so far this year as the market readjusts following a boom between 2020 and 2022,” Scholtz said.

“Some of the fundamentals in the market have changed in recent years; energy prices are lower, while the cost of capex and capital have both increased. These headwinds mean investors are focusing on the highest quality opportunities. There is less investor appetite for passive or minority equity ownership, which has traditionally driven lower returns,” Scholtz added.

That said, notable deals have occurred, with a heavy leaning toward public market repositioning or preparations for further activity. This includes Naturgy’s significant buyback of shares – around 9% or EUR 2.33bn – and the sell-down of a 20% stake in Eni’s renewables and energy retail subsidiary, Eni Plenitude, to Ares Alternative Management for EUR 2bn ahead of an expected IPO in the coming years.

Also, the pipeline of projects coming online and capital piling into new assets are good indications of future M&A uptick. A view shared by other sector advisers.

“While M&A itself may appear to have slowed down, the project development and financing opportunity has continued to grow, particularly in the renewables sector,” said Humphrey Douglas, energy partner at Dentons. “We have seen projects, particularly in the Middle East and Eastern Europe, that require billions of euros of investment. This is encouraging for future M&A activity, as these mega solar and infrastructure projects will begin to fill the M&A pipeline once built.”

Mining M&A has equally found itself in the rain shadow of bumper years. The deal count dropped 36% to 38 in 1H25 from 59 in 1H24, while the transaction value was down 59% to EUR 5bn from EUR 12bn in the year-earlier period.

However, UK mining majors Anglo American and Glencore have both been the subject of takeover speculation in the past year. Should either of these multibillion-pound companies come under renewed takeover interest from their larger peers, we could see mining M&A return to the big leagues.

Greasing the wheels

But oil and gas has, perhaps to the dismay of the ESG-minded, somewhat come to the rescue, with a modest decline in deal count being offset by a year-on-year increase in transaction volumes to EUR 18bn in 1H25 from EUR 12bn in 1H24. 

So, just as gas-fired power stations are a backup to renewable energy, hydrocarbon M&A has stepped into the vacuum of renewables and network deals.

“Western oil and gas company strategies are rooted in the energy transition, with disposals of upstream assets continuing. At the same time, hedge funds and some shareholders are increasingly pushing for a return to the profitability of oil and gas, at the expense of investment into greener areas,” Dentons’ Douglas said.

So, there’s life in the old dog yet, with pressures for a transition into greener energy dovetailing with a softening from lenders more willing to support oil and gas transactions to act as catalysts for deal flow.

Top oil and gas deals announced year to date include the ongoing merger between Saipem and Subsea 7 to form a EUR 6bn offshore services giant, and the sale of Hitecvision-backed Sval Energi to DNO.

“In 2023, there were a series of mega-deals and corporate consolidations involving US players that had international assets, such as ExxonMobil’s acquisition of Pioneer and Chevron’s acquisition of Hess,” noted Luke Kanczes, director of investment banking at Gneiss Energy.

“Then, going into 2024, there was a degree of post-deal consolidation and a dip in M&A. Now, coming into this year, there’s a return to active portfolio management, such as Chevron’s ongoing divestiture from Block 14 in Angola,” he said.

In fact, deals are happening apace across EMEA, and not always for positive reasons. One transaction of note in the UK is the sale of Prax Upstream by the administrators of its parent company, which launched earlier this month.

Much of the activity consolidation in the UK is driven, at least in part, by its headline tax rate of 78%, noted Kanczes. Meanwhile, there is also an uptick in activity in the Middle East, notably in Oman, with the ongoing Block 6 sale process and the Block 50 farmout process for Masirah Oil, on which Gneiss is advising, said Kanczes.

There is also a quiet uptick in private equity activity and more bullish support from lenders and other financial backers.

There are two or three very active private equity investors in the space, notably Carlyle, via its XRG joint venture with Adnoc, and Quantum Energy Partners, but “gone are the days when there were half a dozen sponsors building upstream vehicles”, noted Kanczes.

Instead, we are seeing smaller independents, such as Africa-focused Afentra, being active on the buyside, as well as an increase in investment by the majors. The latter, despite also divesting many assets, are keen to arrest declining production and build their exploration pipelines, he added.

“Overall, portfolio reorganisation will be a continuing trend, as companies seek to rebalance portfolios and re-focus on core regions and commodity types, with strong buyer appetite from a mix of National Energy Companies, smaller independents, private companies, and some select PE-backed players,” Kanczes added.

And let’s not forget the elephant in the room. On 26 June, Shell publicly stated that it is not in takeover discussions with its smaller peer BP, thus discounting itself from initiating an offer for the next six months.

Even if there is no megadeal between the two UK energy majors when the clock runs out in December, others may push in to make a move on BP, including French rival TotalEnergies or a potential mix of US and Middle Eastern investors.

If, after decades of speculation and half-baked discussions, a BP-related merger were to occur in the second half of this year, oil and gas will reclaim its title as the dominant energy sector.