How is the energy sector handling the current regulatory environment?
Vito Sperduto: Last year, the FTC and DoJ released drafts of the merger guidelines which were then finalized in December. It’s pretty clear they’re taking a more aggressive approach to merger enforcement. Now, we’re starting to see the first cases under the new guidelines make their way through the court system, the Kroger-Albertsons deal being one of them.
Tim Perry: Five of the last seven corporate mergers have had second requests. In the second request, every single deal has gotten approved, so in that sense, people continue to be optimistic and positive. But it’s very intense and it causes significant delay for companies – usually as much as six months.
“Second requests are very intense and cause significant delays for companies – usually as much as six months.”
Tim Perry, Vice Chairman of Global Energy
Sperduto: If you’re very concerned about an elongated regulatory process, or a process that might not end in a positive fashion, you may not consider that transition. You need to plan and be able to withstand a longer timeline between sign and closing.
Woodruff: Part of the solution management teams and boards might consider could involve divestitures or information sharing rights, for example. We’ve been helping these stakeholders understand impacts to synergies on a transaction so they can ultimately decide: is the juice worth the squeeze on the pro forma business when you factor in more time during a regulatory review potentially missing opportunities.
How is the U.S. market placed at present?
Woodruff: International oil companies are now coming back into the U.S. They’ve taken a pause over the last five, six, seven years during some of this early consolidation wave.
“International oil companies are now coming back into the United States.”
Nick Woodruff, Managing Director, Global Energy
Sperduto: Just under two-thirds of all transactions from a dollar volume perspective had the U.S. as the target market for year to date – that is a 35-year high. It just highlights that this is the most desired market.
“Just under two-thirds of all transactions from a dollar volume perspective had the US as the target market for the year to date – a 35-year high.”
Vito Sperduto, Head of RBC Capital Markets, U.S.
Woodruff: When you’ve got a friendly fiscal environment, private equity, an oilfield service group and midstream gathering, it really enables development in the U.S. compared to other parts of the world.
What’s the current state of the acquisition and divestiture market in energy?
Nick Woodruff: The A&D space over the last decade has been about a $50bn to $60bn a year market. We traditionally see 30% of merger value come out through a divestiture over the residual three years.
The next wave of A&D in the marketplace is portfolio rationalizations from the strategics. But as we look forward to 2025 and beyond, RBC really thinks this is going to be more like a $20bn to $30bn market: we just see less strategics around.
Six years ago we used to have 42 private equity sponsors; today we’ve got 21. We’re down 60% on portfolio teams. There’s less opportunities from an acquisition standpoint, and that means there’s consolidation even on the private side.
How is AI affecting demand for energy?
Woodruff: When we think about how we’re going to power the data centers and all of the AI power generation, RBC sees anywhere from 8bn to 15bn cubic feet demand growth through the rest of the decade to fuel baseload power. Where’s that going to come from? Short cycle shale is certainly an application.
Perry: What’s equally exciting is what AI is going to do for the cost structure of companies. The industry has become much more efficient. Drilling days are now probably one-third what they were five to ten years ago. The exciting thing about AI is what it will do for the internal processes of all these companies.
“The exciting thing about AI is what it will do for the internal processes of companies.”
Tim Perry, Vice Chairman, Global Energy
