Expect more big deals in 2017, Moody’s says

A worker waits to connect a drill bit on Endeavor Energy Resources’s Big Dog Drilling Rig 22 in the Permian basin outside of Midland, Texas, on Dec. 12, 2014. (MUST CREDIT: Bloomberg photo by Brittany Sowacke)

Higher oil and gas prices should bring bigger energy mergers and acquisitions as 2017 stretches out, according to a new report, including pipeline consolidations and big deals among oil explorers and producers.

Pipeline companies will merge to gain efficiencies and cut debt, the bond credit rating agency Moody’s Investors Service reported Tuesday. The consolidations may not offer as much cash flow as new construction, but they will help the merged firms cut costs and pay off debt.

Exploration and production deals, meanwhile, should keep getting bigger this year, Moody’s said.

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“E&P acquisitions and divestitures dropped off when commodity prices collapsed in late 2014, but have significantly ticked up since mid-2016,” the report says. Companies are trying to sell land that isn’t essential to their drilling programs to buyers with adjacent operations. Moody’s expects more of that this year.

Still, Moody’s warned, some of the competitive bids have gotten so hot the prices may not last. The firm highlighted West Texas’ prolific Permian Basin as one location where pricing has, perhaps, risen higher than values will allow.

The 2017 deals will even spread to oil field services and refining, the report says, as those companies begin to increase pricing and stabilize wobbly balance sheets.

“As oil and natural gas prices stabilize at higher levels, increasing confidence in industry prospects will spur further acquisition activity in 2017,” the report says.

After a lull during the downturn, debt and equity markets will fire back up this year, Moody’s concluded.