Identifying the need for enhanced value creation in the next wave of oil and gas mergers is crucial. While many upstream companies focus on reducing general and administrative (G&A) expenses, they often overlook the operational synergies that can lead to significant value creation. This article explores the steps that upstream companies can take to maximize the value and resilience of their mergers by going beyond G&A savings.
Most Deals Don’t Create Value: Analyzing Upstream M&A Performance
Examining the past 12 years of upstream deals reveals that a majority of deals, especially those over $1 billion, have failed to create value. However, successful deals that generate outsized returns for shareholders exist. To determine deal success, various factors such as pre-deal diligence, asset performance, market outlook, and transaction management play important roles. Nevertheless, the ability to achieve differentiated value creation is a key determinant of merger success.
One Plus One Equals Three: Maximizing Value by Expanding Synergy Goals
Typically, upstream deals focus on G&A reductions for synergy goals. However, operational synergies often offer greater potential for value creation, often surpassing the magnitude of G&A savings. The most successful mergers adopt a transformative approach, pursuing synergies across financial categories and functions, including operations. By expanding the aperture to revenue, production, operating costs, and capital efficiency, companies can catalyze performance improvement across both entities.
