The oil and gas industry saw its first billion-dollar M&A deal announcement of the year in February as EQM Midstream Partners LP and Equitrans Midstream Corp. agreed to combine in a transaction valued at $1.76 billion, according to S&P Global Market Intelligence data.
The midstream arms of Appalachian shale gas giant EQT Corp. struck a share-for-unit merger deal that would result in a simplification of the two entities, converting into a C corporation structure and acquiring EQT's equity stake in Equitrans. Tom Karam, who serves as chairman and CEO of both EQM and Equitrans, cited transparent governance and the potential to attract a broader pool of investors as drivers for the roll-up transaction.
The North American midstream sector also dominated the oil and gas industry's largest asset deal announcements in February. Magellan Midstream Partners LP, Plains All American Pipeline LP, Phillips 66 and NextDecade Corp. all unloaded stakes in oil and gas pipelines to other public and private operators. Black Diamond Gathering LLC's acquisition of a 20% interest in the Saddlehorn oil pipeline for $155 million from Magellan and Plains was the biggest asset transaction announced in the month.
The second month of 2020 saw the oil and gas sector announce two more whole-company and minority-stake deals above February 2019 — 38 deals compared to 36. The combined publicly disclosed value of those deals fell sharply from just over $6.6 billion to about $2.7 billion.
The aggregate disclosed value of announced asset transactions fell from nearly $2.9 billion to about $2.1 billion over the same time period, and the number of those deals dropped by 8 to 31.
The uptick in substantial midstream M&A activity occurred despite private capital's hesitation to further invest in the pipeline industry and collapsing commodity prices amid the global coronavirus outbreak, record natural gas storage builds and declining rig counts. At the same time, the combined drop in both corporate and asset-level deals in February 2020 compared to February 2019 indicated how plunging commodity prices impacted the oil and gas industry as a whole. And oil prices have crashed in early March; West Texas Intermediate crude oil prices settled at $31.13 per barrel March 9.
"Commodity price volatility is inversely correlated to energy M&A," Robert W. Baird & Co. analyst Ethan Bellamy said in a recent interview. "The wider the range of possible revenue expectations, the less likely a bid-ask spread narrows enough to complete a deal. No one wants to look like a chump three months after closing a deal."