Is there a link between the oil prices and deals?

Published on 16-10-2015 14:37:5016 October 2015

Analysis indicates that there is a linkage between the prevailing oil price and industry deals, but this is unsurprisingly not linear and differs between types of deals.

Deal number correlates well
The oil price saw a steady increase from approx $55/barrel up until its peak during the years 2011 – 2013 where it stayed approximately at the $110/barrel mark. In this time the number of deals completed has somewhat kept up with the pattern of the oil price, as 1118 deals occurred in 2011 and 1041 in 2012, which were the most in a single year since 2005.

However, since then oil has seen a massive decline in price, with the current price being $50/barrel. As expected, during this period, the number of deals gradually dropped from the heights of 2011 in line with the oil price.

Deal value not as well correlated
Total deal value does not follow quite the same trend as the number of deals, with the values of the deals significantly less in 2011 and 2013 suggesting that even though more deals took place in those years, many of the deals would have had lower values.

The peak in total deal value was in 2012 at approximately $300bn, a contributing reason for this could be because the deals in 2012 involved much higher proved reserves than any of the other years hence the average value of the deals were higher.

Larger deals not affected
However, with further analysis, it becomes transparent that the oil price does not affect the bigger players in the market, for example deals with values above $10bn are not too affected by the oil price as there has not been a large change over the years in these types of deals. In fact the largest deal from the last five years has come in 2015, the year where the oil prices have been the lowest; this was the deal where Shell acquired BG for $81.9bn.

Corporate M&As buck the trend
When the deals were broken down into type of fields, a similar trend seemed to have continued on the whole amongst all the types. However, the proportion of Corporate M&As decreased from 26% of all deals in 2006 to 11% in 2013, but more recently they are increasing again with the figure at 18% in 2015 up until now.

In conclusion, we can see while there may be a trend between the oil price and number of deals occurring over time, there are many other factors to be taken into consideration and with more in-depth analysis the trend starts to fade.

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