Surging M&A Activity Suggests Worst Finally Over for Oil

The second half of 2016 is shaping up to be one of the most active for M&A activity in the US oil and gas industry, a sign that companies and investors are growing confident the worst of the more than two-year downturn is over. According to new data from the EIA, the value of the average M&A deal in the fourth quarter is set to be the highest in years. In the third quarter, there were 93 M&A announcements across the US oil patch totaling $16.6 billion. In other words, the average deal was worth $179 million, the highest average since the third quarter of 2014. The spread is now at the same level as it was back in November 2014 when oil prices traded at $70 per barrel. In other words, the default risk of high yield energy debt has plunged in the second half of 2016, and with less of a default risk, lenders are more willing to lend.