In some ways, 2016 was the best of times and the worst of times for M&A in the oil patch. On the downside, the sector saw two notable deals fall apart (Energy Transfer-Williams Companies and Halliburton-Baker Hughes), and it lacked a headline-grabbing megamerger such as Royal Dutch Shell's 2015 decision to pay $53 billion for BG Group.
However, what 2016 lacked in size, it made up for in volume. According to a report from PwC, this past year was more active than 2015, especially in hot shale plays such as the Permian Basin of Texas and STACK/SCOOP of Oklahoma.
That said, the sector still had its fair share of big deals. Further, two clear trends emerged from the largest transactions. The acquirers either wanted to increase their scale to cut costs or take advantage of the growing natural gas market in the United States. Here, then, is a look back at the five biggest M&A deals of the year.
No. 5: Range Resources' $4.2 billion bet on Gulf Coast gas
According to a report by PLS, producers spent more than $23 billion locking up prime positions in the Permian Basin and another $7 billion on Mid-Continent acreage acquisitions. However, most of those were smaller deals, with the top transaction weighing in at $2.5 billion. Meanwhile, the Ark-La-Tex region near the Gulf Coast quietly tied for the second hottest M&A geography in the country, largely because of Range Resources (NYSE:RRC) acquisition of Memorial Resource Development. Range Resources paid $4.2 billion, which includes the assumption of debt, to gain a leading position in the Lower Cotton Valley region of Northern Louisiana. Not only is the play saturated with natural gas, but it's also near the Gulf Coast, which is expected to see increased demand from new petrochemical and industrial complexes as well as LNG export facilities. In other words, Range Resources made a big bet on higher gas prices along the Gulf Coast.
No. 4: Technip and FMC Technologies combine in a $13 billion deal
Following a series of M&A announcements in the oilfield-services sector since the onset of the oil market downturn, French oil-field service company Technip and U.S. oilfield equipment company FMC Technologies (NYSE:FTI) hooked up in an all-stock deal valuing the combined company at $13 billion. Shareholders of each company will own 50% of the combined entity, to be named TechnipFMC, which implies a roughly $6.5 billion acquisition valuation for each entity. The transaction, which should close early next year, will "combine Technip's innovative systems and solutions, state-of-the-art assets, engineering strengths, and project management capabilities with FMC Technologies' leading technology, manufacturing, and service capabilities." Further, it should save $400 million in annual costs by 2019. Moreover, it will enable the combined company to compete better against larger oil-field service rivals Baker Hughes (NYSE:BHI), Halliburton (NYSE:HAL), and Schlumberger (NYSE:SLB), which have all gained strength during the downturn either through M&A activities or cost savings initiatives.
No. 3: TransCanada turns on the gas in a $13 billion deal
After a series of setbacks in its attempts to build new oil pipelines, Canadian pipeline giant TransCanada (NYSE:TRP) completed a transformation transaction to acquire U.S. natural gas pipeline company Columbia Pipeline Group for $13 billion, which includes the assumption of debt. The key to that deal was that it increased the combined company's near-term project pipeline to 23 billion Canadian dollars, which supports TransCanada's ability to increase its dividend by 8% to 10% annually through 2020. After completing that deal, TransCanada made a bid to acquire all of the outstanding units that it did not own of affiliated MLP Columbia Pipeline Partners (NYSE:CPPL) in a transaction valued at $915 million. These acquisitions solidified TransCanada's natural gas pipeline growth ambitions, enabling it to diversify away from oil pipelines.
No. 2: Enbridge creates an energy infrastructure behemoth in a $28 billion deal
Not to be outdone, rival Canadian oil pipeline giant Enbridge (NYSE:ENB) announced a transformational gas-focused deal of its own, agreeing to acquire U.S. pipeline company Spectra Energy (NYSE:SE) for $28 billion. That transaction will catapult Enbridge past TransCanada and create the largest energy infrastructure company in North America. Further, the deal will bolster Enbridge's near-term capital project backlog to $20 billion, while enhancing its inventory of longer-term investment opportunities to $37 billion. This pipeline supports Enbridge's view that it can increase its dividend by 10% to 12% annually through 2024.
No. 1: GE creates an oilfield-service giant
Not long after Baker Hughes' $28 billion deal with Halliburton fell apart over regulatory issues, the company sealed a deal to merge with General Electric's (NYSE:GE) oil and gas operations. Under the terms of the agreement, GE will own 62.5% of the new entity while Baker Hughes investors will own 37.5% of the "new" Baker Hughes and receive $17.50 per share in cash via a special dividend totaling a $7.4 billion. The deal will create the second largest oil-field service company by revenue, leaping past Halliburton to rival Schlumberger. Further, the merger should deliver $1.6 billion of cost synergies by 2020. GE expects the deal to close next year and hasn't hit any of the regulatory hiccups that derailed Halliburton's attempt to acquire Baker Hughes.
There were two clear trends among the biggest oil and gas M&A deals this year. First, oilfield-service companies paired up to increase their scale and reduce costs. Second, companies expanded to the south in a bet on the future of natural gas, with Canadian oil pipelines giants gaining a foothold in the U.S. natural gas pipeline market, while Range bet on growing Gulf Coast gas demand. These general M&A trends appear poised to continue in 2017, as an improving oil market should lead to more deals driven by cost reductions and capturing emerging opportunities.