Will 2022 be a buoyant year for upstream M&A activity?

This year will almost certainly bring an increase in upstream M&A activity as high commodity prices bankroll acquisitions. It’s a trend we’ve been seeing for some months. Having ground almost to a halt in the first half of 2020, deal flow crept up steadily throughout 2021. In the latter part of the year activity reached levels not seen since 2018.

So, what will the year ahead bring?

This article is an introduction to Global upstream M&A: 5 things to look for in 2022, which draws on insight from Wood Mackenzie Lens Upstream. Fill in the form to read our predictions in full, or read on for a short introduction.

Robust commodity prices are driving upstream M&A activity

Deal activity will increase if commodity prices hold. Companies’ ability to finance and execute acquisitions improved immeasurably through the course of 2021 – we can see this clearly in the increasing number of larger cash asset deals. If commodity prices remain elevated, the ability to execute transactions will only increase through 2022. A multi-year high could be ahead.

How many deals do we expect to see? What could stand in the way? And could sustained higher prices see sellers become holders? Read the full report to find out more.

The Majors will seize the opportunity to divest assets globally

The Majors still have a lot of assets to sell. Our deal pipeline notes potential material disposals across North America, Europe, Africa, the Middle East and Asia Pacific. After all, the current oil and gas cyclical upswing can’t last forever. For many Majors – especially those most rapidly accelerating towards new energies – taking advantage of it while it lasts is something of a no-brainer.

Read the full report to see highlights of the Majors' potential divestments.

Deal valuations won’t rise at the same rate as deal flow

We don’t expect valuations to surge higher in 2022. That may seem counterintuitive in the face of the rising deal flow we do expect – more buyers surely equals more competition and therefore price inflation? But there are three mitigating factors in play:

1.  ‘More buyers’ is not the same as ‘many buyers’. Outside North America, the pool of traditional buyers has reduced considerably. Competitive bidding for assets will remain limited to select countries and assets.
2. Would-be buyers are not profligate. For many public E&Ps, particularly in North America, capital discipline is the current mantra. For private companies, particularly private equity, the focus on discipline is even sharper.
3. Carbon is an increasingly important factor. The risk it brings will be priced in by buyers. This could mean that carbon price assumptions are levied on Scope 1 and 2 emissions, for example, or that additional risking is applied to long-life cash flows to account for future demand weakness.

Read the full report for more analysis of carbon as an increasingly important driver of both divestments and acquisitions. Fill in the form at the top of the page of your complimentary copy.