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A superlative H2 saves 2020 from being a slow year for E&P M&A

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A superlative H2 saves 2020 from being a slow year for E&P M&A

An epic oil price collapse preceded a wave of M&A transactions in the second half of 2020 that included some of the largest in recent memory, which saved what had been an unusually slow year for M&A among global oil and gas producers.

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During the first half of 2020, there were 48 transactions in the sector with an aggregate transaction value of $1.72 billion, the lowest level in several years, according to an analysis by S&P Global Market Intelligence. But during the second half of the year, companies announced 82 deals with an average transaction value of $52.2 million, more than double the average of the same period over the previous six years.

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Those deals had an aggregate transaction value of $42.81 billion and included three of the largest announced since 2014.

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Chevron Corp.'s $13.76 billion acquisition of Noble Energy, which closed Oct. 5, 2020, was the largest since 2014, save for Occidental Petroleum Corp.'s leveraged buyout of Anadarko. When Chevron announced the deal on July 20, 2020, analysts correctly predicted it would kick off a wave of deals for Permian Basin assets.

On Sept. 28, 2020, Devon Energy Corp. announced it would acquire WPX Energy Inc. in a deal with a transaction value of $5.79 billion. ConocoPhillips followed three weeks later by announcing a transaction worth $13.13 billion to acquire Concho Resources Inc.

Experts agree the increased scale of the companies that emerge from the recent wave of M&A will leave them better positioned to weather low, volatile oil prices as the global economy recovers from the COVID-19 pandemic.

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S&P Global Ratings said Nov. 23, 2020, that ConocoPhillips' pending acquisition of Concho would improve "cash flows and leverage relative to each of the companies on a standalone basis." The rating agency said Sept. 29, 2020, that Devon's acquisition of WPX "would position it at the stronger end of the range relative to its peers rated in the 'BBB-' category before incorporating any potential asset sales" and would "likely improve Devon's credit metrics and cash flows."

S&P Global Ratings said Oct. 21, 2020, that Pioneer Natural Resources Co.'s acquisition of Parsley Energy Inc. "will not have a material impact on Pioneer's strong debt metrics," but that the transaction improves the credit outlook for Parsley.

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