Peculiarities of the oil and gas industry
The oil and gas (O&G) industry holds a key position in the global economy, as both our main source of energy and a key component of various sectors worldwide. But it’s also a changing environment due to environmental concerns and the gradual move away from fossil fuels, as well as geopolitics, and governmental regulation.
To understand the nature of the industry, consider some of its main characteristics.
- Size and scale. The gas and oil industry is one of the largest in the world by revenue, generating over $7.3 billion in 2023 and set to grow further to $8.6 billion by 2027.
- Globalization. Most of the market share is taken up by a few companies — with prominent names such as ExxonMobil, Saudi Aramco, and PetroChina — which operate and invest in multiple countries.
- Geopolitical importance. Because it deals with reserves of critical resources for our way of life, the industry is both affected by and plays an important role in geopolitics. A recent example of this was seen in the huge increase in gas prices following the 2022 Russian invasion of Ukraine.
- High capital intensity. The industry requires large capital investments for its activities of exploration, development, and operation of oil and gas projects.
- Tech advancements. Technological innovation plays a critical role in the profitability of the industry. As of 2019, the gas and oil automation and control systems industry (ACS) was worth $26.8 billion and is forecasted to pass $40 billion by 2030.
- Environmental concerns. As a key player in the fossil fuels industry, it faces increasing scrutiny due to pollution and its impact on climate change, with a growing trend in developed countries for moving towards renewable and alternative energy sources.
It’s also worth noting the industry tends to be heavily subsidized, in connection with its strategic importance for countries and its impact on the economy as a whole.
Dealmaking in the oil and gas industry
Although M&A activity in the O&G sector is down to its lowest level since 2008, there’s been a considerable uptick in dealmaking in some sectors of the industry over the past few years, in line with the general pandemic-induced trend of larger players acquiring smaller ones. Industry deals have been characterized, among other things, by:
- Tighter environmental scrutiny. The energy transition debate and government regulations on carbon emissions have pushed companies to look for acquisitions that help streamline operations and reduce Scope 1 and Scope 2 emissions.
- Demand for energy security. One of the major drivers of post-pandemic M&A events has been a shift in focus toward securing supply chains and building greater resilience.
- Operational excellence as a driving force. Consolidations have been propelled by a need to increase operational efficiency, including a push for greater automation and digitalization.
- Clean energy. Clean energy represented 15% of the total value of O&G deals in 2022, with a record $32 billion overall value.
Examples of M&A deals in the oil and gas industry
The overall value of M&A deals is down, but that doesn’t mean the big players aren’t making any moves. In fact, there have been a number of recent deals where major companies targeted acquisitions that increase their output productivity. Others have sought to generate value through synergies by procuring key players in the supply chain.
Among deals in recent oil company mergers and acquisition history, there are many big ones, including:
- Diamondback Energy acquires Lario Oil & Gas for $1.5 billion and FireBird Energy for $1.6 billion, adding in the process around 500 new drilling sites to its portfolio.
- Marathon Oil acquires Ensign Natural Resources for $3 billion, expanding its portfolio by another 550 drilling locations
- Canadian Baytex Energy buys rival Ranger Oil in a $3.4 billion deal, marking a large oil and gas merger and increasing its presence in the Eagle Ford shale basin.
All of these large-profile oil and gas acquisitions mean a larger portfolio is formed, affording companies a greater degree of stability and increased cash flows in a volatile market.
Best virtual data room for oil and gas company
Increasingly, large-scale transactions such as mergers and oil and gas acquisitions and divestitures are conducted across virtual data rooms. These secure cloud-hosted platforms have the advantage of concentrating all the dealmaking activity in a single controlled space, rather than having documentation be sent over by email or other unencrypted channels.
Compared to the use of a physical data room, a virtual data room offers greater flexibility and a high level of security when dealing with confidential documents. This has led most oil and gas corporations to move from traditional data rooms to cloud-based ones, especially after the Covid-19 pandemic struck. Now data rooms are often used during environmental audits, for bid management, and to manage and share due diligence documents.
The virtual data room market is still fairly young and varied, with a large array of top data room software providers used by all industries. Let’s take a look at five major oil and gas dataroom providers.
Established in 2008, iDeals has been adopted by major companies in the energy sector for capital raising, due diligence, and auditing, among other use cases. The platform provides advanced capabilities, high-level security standards, and a convenient and easy-to-operate business environment. iDeal stands apart from the competition, particularly in the excellent customer support and training programs it offers.
Founded in 2005 and headquartered in California, Box provides virtual data rooms and cloud-hosting solutions to a range of industries and is a popular data room for oil and gas industry. The company’s offerings include integrations with major software providers such as Microsoft Office, Adobe, Zoom, and Google Worksuite.
Another favorite provider for O&G companies, Datasite provides virtual data rooms for due diligence, restructuring deals, M&A, fundraising, and IPOs. Moving fast to keep up with the latest tech, Datasite provides users a convenient mobile workflow, advanced analytics, and actionable AI-based insights.
A provider of data management and sharing solutions for big names in the energy industry, including TC Energy and Kinder Morgan, Firmex has been at the top of the list for gas and oil software providers. The Firmex virtual data room includes easy user management with complete activity audits, auto-indexing, and an intuitive platform for large teams to manage critical documents and collaborate on them.
DealRoom is a fast-growing oil and gas data room provider that has been used by a number of companies in the oil and gas industry and caters to a large array of other markets. Among the key advantages of DealRoom are an advanced system of BI reporting, an intuitive interface, and a wide range of security and data control features for managing legal documents and other sensitive materials.
You can see a breakdown of each provider in the table below.
|iDeals||Outstanding customer service with a 30-second chat response time|
Unlimited training for all VDR users
Detailed audit trails
|Box||Integrations with MS Office, Adobe, Zoom, Google Worksuite, etc.|
Data leak prevention
In-built electronic signature
Centralized audit logs
|DataSite||Secure mobile workflow|
Advanced analytics and AI insights
Due diligence checklists
|Firmex||Intuitive platform, easy to manage users|
Auto-indexing and thorough activity audits
Large variety of collaboration features
|DealRoom||Advanced BI reporting capabilities|
Variety of security features such as customizable document permissions
Intuitive platform for oil and gas management
Integrations with Slack, Salesforce, and Okta
Most common deals for oil and gas companies
Deals activity is a key driver of growth in the O&G industry. Common deal types include M&A deals, joint ventures, production-sharing contracts., and farm-ins and farm-outs
Mergers and acquisitions, or M&A, involve consolidations between two or more companies. These can happen through simple acquisitions, mergers, or asset purchases such as stock purchases. The aim is usually to expand a company’s position in the market, generate larger cash flows, or achieve synergies and cost efficiencies.
A joint venture (JV) is a business arrangement where two or more companies join to pool resources and pursue projects. There are two types of joint ventures in the O&G industry:
- Contractual joint ventures. The joint venture parties form a consortium agreement that determines the responsibilities and risks incurred by each party, as well as the assets required to provide their services.
- Incorporated joint venture entity. Here, both parties form a new entity (either a partnership or a new company) which will then enter into contracts in the industry and be fiscally liable.
Production sharing contracts, or PSCs, are the rights awarded by a government that allow a company or joint venture to explore a certain area and conduct operations in it. The company or venture will then share the production with the host government under predetermined terms.
Farm-ins and farm-outs
Farm-in and farm-out deals involve a transfer of working interests in oil and gas assets. They usually happen in the context of a company having won the bidding for a government concession or PSC. Although the other participants in the auction will have lost, they can still negotiate with the winner for a share of the exploration — that’s a farm-in.
A farm-out, on the other hand, is a business divestment that happens when a company currently holding a government concession decides to move out of the business and transfer its rights to another company willing to take over the gas or oil exploration enterprise.
Gas and oil exploration is one of the largest industries in the global economy and a huge sector of business activity. But with the considerable political importance associated with it comes also a degree of government interference, volatility, and unpredictability that puts it outside the scope of mere capital markets. Big players also must be constantly on the lookout for ways to consolidate and fortify their position in the market due to the impact of fossil fuel consumption on climate change.
The resulting dealmaking activity drives a big demand in oil and gas companies for virtual data room services — a demand that has picked up since the beginning of the pandemic.
With the acceleration in digital transformation and the need for a secure digital environment, data rooms are likely to continue playing a key role in gas and oil dealmaking for the foreseeable future.