Daily Update: February 2, 2021

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Oil and gas producers and renewable energy companies have turned to mergers and acquisitions (M&A) to weather the storm of the COVID-19 pandemic. The consolidation of companies that, faced with bankruptcy, joined together to stay solvent will reshape the industry landscape for years to come, especially as they increase their investments in the transition away from fossil fuels toward clean energy.

Last year, there were 130 announced M&A deals in the energy sector worldwide. The industry was hammered by coronavirus-containment measures and the dramatic constriction of oil and gas consumption, a dispute between Saudi Arabia and Russia that pushed the price of oil into negative territory for the first time, and the 22-country coalition of the Organization of the Petroleum Exporting Countries and their allies agreeing to a historic production cut. Forty-eight deals, totaling $1.72 billion and marking the lowest M&A activity in recent years, occurred in the first half of 2020. This was followed by 82 deals, with an average transaction value of $52.2 million, in the second half, levels more than double the average of the same period over the previous six years, according to S&P Global Market Intelligence. 

The four most notable energy deals, all of which are centralized in the U.S.’s Permian Basin, were recently completed. Energy conglomerate Chevron’s acquisition of independent producer Noble Energy for $13.76 billion closed in October. In a so-called merger of equals, hydrocarbon exploration companies Devon Energy and WPX Energy completed their $5.79 billion deal in early January. Pioneer Natural Resources completed its $4.5 billion acquisition of Parsley Energy on Jan. 12. Shortly after, multinational ConocoPhillips closed its $13.13 billion acquisition of Texas-based Concho Resources. 

Some deals were discussed but didn’t proceed. The CEOs of Exxon and Chevron reportedly engaged in preliminary conversations about a merger of the two giants due to the pandemic’s implications to their industry and companies, according to the Wall Street Journal. While the talks weren’t ongoing, the action signals the severity of the COVID-19 crisis’ shake-up of the energy landscape. 

Consolidation in the Permian Basin continued following these announcements through the summer and fall. "The level of stress in the industry is such that companies see strength in numbers—even if the selling price is not at the level that sellers would have historically been willing to accept," Pavel Molchanov, an energy analyst at Raymond James, told S&P Global Platts in October. 

Now, "the best companies have been picked off," Pioneer CEO Scott Sheffield said during a Jan. 6 Goldman Sachs energy conference, according to S&P Global Platts. "There's two or three privates that are left."

But as American producers have chosen to scoop up companies similar to their own, European oil and gas conglomerates are investing in a different approach. France’s Total has expanded its renewable energy footprint by acquiring green energy companies and assets at a pace far more aggressive than its oil and gas supermajor peers, according to S&P Global Market Intelligence. 

Total continued its decarbonization efforts as the pandemic took hold of oil markets. "We didn't compromise on our objectives. On the contrary, we found nice opportunities to make some acquisitions at much lower prices," Philippe Sauquet, the president of Total's gas, renewables, and power business, told S&P Global Market Intelligence in an interview. "It's clear that some small companies are lacking cash, and yes, there is a very strong likelihood that there will be companies willing to sell,” acknowledging that the trend would continue.

That can be seen in recent activity in the clean energy space. From October through December, European renewables companies announced or closed more than 230 deals, marking the most active quarter since the same period of 2017, according to S&P Global Market Intelligence data.

U.S. companies may be close behind. Exxon announced on Feb. 1 that it will invest $3 billion through 2025 to create a “low carbon solutions” business unit focused on carbon capture and storage technologies.

“With our demonstrated leadership in carbon capture and emissions reduction technologies, Exxon Mobil is committed to meeting the demand for affordable energy while reducing emissions,” Exxon CEO Darren Woods said in a statement.

Today is Tuesday, February 2, 2021, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Economic Research: Within Reach: How Stimulus Proposals Lift U.S. GDP To Pre-Pandemic Levels

In S&P Global Chief U.S. Economist Beth Ann Bovino’s analysis, President Joe Biden's proposed $1.9 trillion stimulus package brings U.S. GDP back to precrisis levels by second-quarter 2021, one quarter sooner than S&P Global Economics’ $1 trillion base case.

—Read the full article from S&P Global Ratings

Economic Research: U.S. Real-Time Data: The Recovery Stalled In January

Since S&P Global Economics’ last report, real-time data has shown the number of coronavirus cases, hospitalization rates, and death rates in the U.S. have eased, and vaccinations have picked up.

—Read the full report from S&P Global Ratings

Europe's €8.6 Trillion Consumer Sector Faces Uneven Recovery From COVID-19

Battered by the COVID-19 pandemic, Europe's consumer sector faces an uneven recovery over the next 24 months as households spend more of their accumulated savings on food, drink, clothing and other retail items.

—Read the full report from S&P Global Market Intelligence

The Future of Credit

Japanese Securitizations' 2020 Rated New Issuance Barely Touched By COVID-19

Total new issuance that S&P Global Ratings’ rated in Japan's securitization market was about ¥2.1333 trillion (21 transactions) in 2020.

—Read the full article from S&P Global Ratings

Market Volatility

Silver Gets Boost On R/Wallstreetbets Hype But Scope Will Hang On Attention Span

Silver could be the next high-profile target for retail investors after the GameStop Corp. stock spike, but analysts are skeptical that social media's meme economy will translate to another legendary result in the market any time soon.

—Read the full article from S&P Global Market Intelligence

Commodities Start the Year on the Front Foot

The headline S&P GSCI rose 4.9% in January, as the industrial portion of the global economy continued to bounce back from the first wave of the COVID-19 pandemic and lockdowns in 2020, and the prices of many agricultural commodities spiked higher on the back of record demand from Asia and the growing risk of grain export restrictions.

—Read the full report from S&P Global Dow Jones Indices

Banking Sector Under Pressure

Greek Banks In 'Complex but Manageable' Situation As Loan Moratoriums End

Greek banks, facing a potential "cliff-edge" effect once pandemic-related loan moratoriums come to an end, face a challenging 2021, according to analysts, but their predicament remains manageable since government subsidies will kick in where repayment holidays end to help otherwise creditworthy borrowers remain performing.

—Read the full article from S&P Global Market Intelligence

India Plans Bad Bank For State-Run Lenders, Effectiveness Remains To Be Seen

India's plan to create its first government-backed bad bank to absorb nonperforming assets from public-sector banks could accelerate the clean-up of the lenders' balance sheet, but the effectiveness will hinge on the amount of capital the government provides, analysts say.

—Read the full report from S&P Global Market Intelligence

Technology & Innovation

UK's Early Industrial 5G Adopters Test Private Networks, Touted Benefits

Next-generation 5G wireless technology promises to usher in the next industrial revolution. But for now, 5G’s industrial status in the U.K. is more evolutionary than revolutionary, limited to trials and testing.

—Read the full article from S&P Global Market Intelligence

451 Research Tech M&A Leaders' Survey: COVID-19 Comeback Continues In 2021

Dealmakers overwhelmingly expect the tech M&A market to build off its record run in 2020. Respondents to the Tech M&A Leaders' Survey delivered their most optimistic forecast in almost seven years, with two-thirds of them anticipating an increase in acquisitions. And there was hardly a naysayer to be found – only 6% said activity would decrease.

—Read the full report from S&P Global Market Intelligence

Global Internet Outages Continue To Climb In 2021, Up 142% Since Early January

Global internet outages continued to rise in the last week of January, with 300 in total, marking the third consecutive week of increased network disruptions, according to data from ThousandEyes, a network-monitoring service owned by Cisco Systems Inc.

—Read the full report from S&P Global Market Intelligence

ESG in the Time of COVID-19

The Essential Podcast, Episode 28: A Billion Oysters — Rewilding New York Harbor

Peter Malinowski, Executive Director of the Billion Oyster Project, joins the Essential Podcast to talk about climate change, social engagement, and an ambitious plan to restore oyster beds to New York waters.

—Listen and subscribe to The Essential Podcast, a podcast from S&P Global

Denver Sets Targets For All-Electric Construction In New Homes and Buildings

Denver will take steps to ensure new homes and buildings are all-electric in the coming years, marking the Mile High City's planned transition away from natural gas heating.

—Read the full report from S&P Global Market Intelligence

Tesla Faces Growing Competition In China After Smooth Ride In 2020

Tesla Inc. enjoyed a breakout 2020 in China on the back of record sales and the rollout of locally produced electric vehicles, but the company faces a stiffer challenge in the country in 2021 from rivals including Volkswagen AG.

—Read the full report from S&P Global Market Intelligence

The Future of Energy & Commodities

Watch: Market Movers Europe, Feb 1-5: COVID Impact and Energy Transition Targets To Be Reflected In Results Season

In this week's highlights: Some of the biggest players in the European oil industry report results this week, reflecting on what was a very turbulent 2020; in the European gas market, storage levels are in focus after record-breaking withdrawals from facilities so far this year; and in power markets, the return of the BritNed interconnector after two months offline is likely to have a big impact on prices.

—Watch and subscribe to Market Movers from S&P Global Platts

France Calls For Nord Stream 2 To be Halted as Navalny Protests Continue

The Nord Stream 2 gas pipeline project from Russia to Germany should be abandoned, a senior French government official said Feb. 1, given Moscow's stance toward opposition politician Alexei Navalny and his supporters.

—Read the full report from S&P Global Platts

Listen: The Biden Presidency, Geopolitics And The Impact On Oil Markets

Former President Donald Trump did everything he could to load up sanctions on countries like Iran and Venezuela in order to cut down on their crude exports. Now we'll see what President Joe Biden might do and whether those moves lead to more barrels coming back on oversupplied markets. Paul Sheldon, chief geopolitical adviser for S&P Global Platts Analytics, discusses the Biden presidency and the potential impact on global oil markets.

—Read the full report from S&P Global Platts

Written and compiled by Molly Mintz.