In the first quarter of 2024, there was $12.5 billion exchanged in midstream oil and gas deals, compared to the total $21.9 billion in all of 2023. Overall, the volume of deals in the oil & gas industry is up 45% year over year. Now is a time of intense change for energy companies, including in the midstream sector.

Past mega-deals, like ONEOK and Magellan Midstream merger, ExxonMobil and Pioneer acquisition, and ConocoPhillips and Marathon acquisition have changed the landscape of the midstream sector.

High interest rates, unfriendly new construction environments, and high oil prices have fueled the increased merger and acquisition activity. As these transactions unfold and operations merge, incompatible systems or non-core systems will present themselves as key opportunities for divestitures.

Potential Drivers of Acquisition & Divestiture Activity

There are many factors that may have contributed to the recent consolidation movement in the energy industry. Inorganic growth methods (i.e. mergers, acquisitions, etc.) are driven by factors, including:

  • Increased regulatory scrutiny or permitting delays harming new construction outlooks
  • Higher cost of capital from rising interest rates
  • Enhanced focus on cost control from investors
  • Increased cost of compliance and resources for data collection

Through major deals, energy companies can continue to meet goals while avoiding major obstacles that limit traditional growth.

Other factors, such as healthy economic conditions for both buyers and sellers, are encouraging these deals at higher rates in recent years.

Healthy Buying and Selling Conditions

Many potential buyers have lower amounts of debt after the COVID-19 pandemic, which means their balance sheets have a higher capacity for debt and the ability to handle acquisition financing. 

Sellers are in a similar position as commodity prices are stable and on the higher side, meaning there is more capital to work with in facilitating these details. This positioning is the result of many economic conditions. First, there was an increase in demand for crude products in the first half of 2024. Second, U.S. economic growth in 2024 was stronger than expected, and inflation was kept at bay. If trends continue in this direction, the economic conditions will remain favorable to future deals.

The Making of a Great Deal

While the market landscape and the players in it may be changing drastically, the criteria for an effective acquisition, divestiture, or merger deal should remain consistent:

  • Enhancing core operations or removing non-core business activities and associated costs
  • Forming synergies that result in significant cost savings, i.e. reducing operational expenses
  • Strengthening positions aligning with core business objectives
  • Improving access to ports or export markets for channel expansion
  • Acquiring complementary assets to strengthen current holdings

Optimizing Portfolios Post-Deal

There are bound to be opportunities for divesting non-core assets from these Mega Deals, as acquirers realize there are gaps in synergies in the packages absorbed in their portfolios. Returning to their core focus reduces OPEX and returns resources to profitable streams, which aligns with the overall increase in demand for cost efficiency.

Resources like Midstream Holdings offer an alternative, streamlined avenue for listing non-core assets. Midstream Holdings is a secure, online platform for listing midstream assets. A ready market of buyers will then be able to access and assess the listed assets to see if they fit with their portfolios.

Conditions are driving major change in the midstream market sector, and innovative tools will allow companies to keep pace. Learn more at midstream-holdings.com