Oil and gas A&D started off 2017 like a pro on a career year, only to develop a case of the wobbles the market could not shake, with deal flow choppy and uneven for the remainder of the year.

In particular, U.S. E&P flinched in the second half of the year as investors shifted their favor—and funds—from barrels to the bottom line.

“Dealmakers entered 2017 with re-awakened animal spirits and aggressiveness toward deals, including liquidity events such as IPOs,” said Doug Meier, PwC’s deals leader for Texas. “As the year progressed, these animal spirits were reined in by extreme focus on core assets, on capital discipline and on expected returns.”

Examined under PwC’s microscope—which filters out deals of less than $50 million—shale-play-only deals had the highest number in history, with 106 announced transactions worth $66.5 billion.

The Permian Basin remained the most active for A&D, with 39 deals worth $30.32 billion, PwC said. But rising commodity prices diverted E&Ps’ attention to the Marcellus (14 deals, $13.07 billion), the Eagle Ford (18 deals, $5.35 billion) and the Bakken (eight deals, $5.29 billion).

Wood Mackenzie, which studied upstream deals of at least $10 million in North American, saw a front-heavy year for transactions, with 41% of all transactions occurring in the first quarter. That included $25 billion in Canada and $21 billion in U.S. tight oil. The Permian alone carried $17 billion of the first-quarter tally.

“Permania did not persist,” the firm’s A&D Quarterly Report said.

By the second quarter, U.S. unconventional spending was dominated by gas deals. In the third quarter, the Permian lost its deal-making crown to the Bakken as the premier tight oil M&A destination.

“The Permian slowdown was mostly a return to mean [values], but it also reflected changing sentiment as investors prompted U.S. E&Ps to focus on cash flow instead of growth,” Wood Mackenzie said.

The fourth-quarter helped to tighten a flabby middle year, Raymond James analysts said in a January report.

By Raymond James’ count, fourth-quarter 2017 A&D generated $8.8 billion on deals on 38 transactions, “which is only slightly below third-quarter 2017’s $8.84 billion … on 42 deals.”

Deal structures added layers of complexity in 2017 that are likely to linger this year, Wood Mackenzie said. Transactions with contingency payments have helped successfully bridge bid-ask spread divides by “de-risking variables such as future oil and gas prices, exploration success, production growth and development,” Wood Mackenzie said.

At least seven deals announced in 2017 included contingency payments totaling a potential $216 million over the next several years.

For U.S. E&Ps, it isn’t clear how vigilant investors will be should oil prices stay at current levels.

“Investors are insisting they focus now on value and cash generation, not growth,” Wood Mackenzie’s report said. “All else equal, this should cause a drag on the sector. But how long will this conservatism last, when oil is above $60 per barrel and U.S. [corporate] tax is falling? Private equity will grasp the opportunity if U.S. equity markets do not.”

In 2017, private-equity investors’ presence was felt across the board. About 17% of deal value was generated through private-equity funding, the highest percentage of deal value since 2012, PwC said.

For now, acquisitions that fare best will have an involved strategy beyond inventory growth or diversification, Wood Mackenzie said. Asset purchases will need to be cash-basis neutral.

“But will investors remain dogmatic? If oil prices stay at current levels, cash generation will improve regardless. A corporate tax cut will improve company net-backs even further,” the firm said. “Investor sentiment could face a huge test—does it continue to demand discipline if the sun is shining on oil and gas?”

Should West Texas Intermediate crude futures remain above $60 per barrel into second-quarter 2018, “expect capital to target growth again and deal flow to increase,” Wood Mackenzie said.

Globally, major oil companies will continue to shore-up long-term growth in A&D activity with their most likely targets in Brazil, U.S. unconventional plays and new frontiers.

Among national oil companies (NOCs), which have largely vanished in the past four years, China is likely to renew its interest in deal activity.

“Other NOCs may grab more headlines. The Russian majors have been consistently busy domestically in recent years, but [the] Middle East and North Africa is a key strategic expansion target for Rosneft,” Wood Mackenzie said.

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