Low Oil Prices Spur M&A Activity: Top 5 Energy Deals Of 2016

As low oil prices continue to plague energy industry for the third successive year, the mergers and acquisitions (M&A) market has remained busy. The flurry of such activities in recent times suggest that stronger companies are lining up to buy the weaker ones.

Low Oil Driving Sector Consolidation

Oil’s horror show has seen black gold’s price come down from some $110 per barrel in mid-2014 to around $48 now, in between falling to a 12-year low of $26.21 in February. The commodity’s collapse has threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and narrowing profit margins.

In these trying circumstances, merger and acquisition deals have helped service providers to cut their average costs and benefit from mutual technical expertise exchange.

Here is an overview of the five major proposed energy deals from 2016:

1.  General Electric-Baker Hughes

The $30 billion merger between industrial conglomerate General Electric Co. GE and oilfield services behemoth Baker Hughes Inc. BHI, announced on Oct 31, is one of the highest valued deal among energy firms in recent times. The merger – combining General Electric’s ‘Oil & Gas’ business with Baker Hughes – will create an entity with unrivaled mix of service and equipment capabilities with operations in over 120 countries. The transaction is expected to close in mid-2017, subject to mandatory regulatory approvals and other closing conditions.

The complementary products of the involved companies are anticipated to provide better solutions to customers alongside creating cost synergy. While erstwhile shareholders of Baker Hughes will hold 37.5% of the new company, the remaining 62.5% interest will be held by General Electric investors. (Read more: Baker Hughes Inks Deal with GE to Form $32B Entity.)

2.  Spectra Energy-Enbridge

In September, leading midstream energy companies Spectra Energy Corp. SE and Enbridge Inc. ENB decided to merge in a $28 billion all-stock deal. Enbridge will have 57% ownership in the combined group and Spectra Energy will have the remaining 43% interest.

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