Energy company mergers hit a 17-year low

Jason Goepfert
2020-10-27
Over the past 6 months, mergers and acquisitions among oil & gas companies have tailed off enough to reach a 17-year low. Relative to all M&A activity, it's declined to a 20-year low.

The energy sector is in a depression.

Losses in the sector have been among the worst in any sector in 90 years, companies are cutting employees and dividends, active oil rigs collapsed faster than just about any time in 30 years, and most of their share prices have dropped so much that they trade for less than a cup of coffee.

It's no wonder few of them want to marry. 

At least some firms are starting to see some bargains, apparently, with a few mergers announced over the past week. As the Wall Street Journal notes:

"The long-anticipated string of transactions is expected to continue for healthier companies in the country’s most prolific oil fields, investors said, while many smaller, debt-burdened companies that are hoping for a deal may draw few offers."

According to Bloomberg data, there have been just over 300 mergers and acquisitions in the Oil & Gas and Oil & Gas Services industries worldwide over the past 6 months. That sounds like a lot, but it's the lowest in 17 years. It has only recently started to curl higher.

There is a close correlation between a sector's price action and its M&A activity, so it's not really surprising that it's dropped off so much from the peak.

Relative to everything else, it's even more extreme. These mergers accounted for about 1.3% of all M&A activity on average over the past 6 months. That's the lowest in 20 years.

This data only goes back a little over 20 years, so we can't quite see how it would have stacked up prior to energy stocks going on their big run of outperformance versus the broader market from 2000 - 08. Still, the fact that it's dropped so much in recent years - granted, for good reason - is another sign showing just how much these stocks have been abandoned.

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