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What's happening in energy M&A?

Updated: Mar 7

Here is a look at some significant M&A news in the energy sector so far this year:

1. EDF takeover suspended by market Watchdog

French President Emmanuel Macron’s government currently owns 84% of EDF and hopes to fully nationalise the firm, as France aims to attain greater control of energy supplies in order to replace Russian gas. The state plans to pay 9.7 billion euros (including transaction costs) to secure nationalisation. The French market watchdog AMF (Autorité des marchés financiers) have suspended the takeover, as several EDF minority shareholders argued the price offered to them was too low. Macron hopes that they can soon find a solution , so that his government can begin to "commit to long-term projects that are sometimes incompatible with the shorter-term expectations of private investors, without being exposed to the volatility of equity markets"

2. Iberdrola looks to sell out $700 million portfolio

The largest energy company in Spain, Iberdrola, is working with Deutsche Bank, aiming to raise a $700+ million portfolio of gas, solar and wind assets. Iberdrola seeks to divest assets, in order to follow through with their proposed “ 3 year plan” involving 47 billion euros of investment, whilst simultaneously maintaining credit ratings and a dividend pay-out of 75% of earnings per share. We wait to hear of the final price of the portfolio, which is contingent upon gas assets, which in Spain were underused last year following recovery from COVID-19.

3. Sempra Energy lands new Polish supply deal

Following Russia's invasion of Ukraine squeezing global supply of energy, Sempra Energy, a North American infrastructure company, has announced their “Phase 1 Project”. This partly consists of supplying 1 million tonnes per annum of liquefied natural gas to Poland’s PKN ORLEN for 20 years. It doesn’t stop there, as Sempra has also landed deals with ConocoPhillips, INEOS, ENGIE and RWE for the sale and purchase of liquified natural gas. Furthermore, as planned investment in the “Phase 1 Project” is forecasted to take place in the first quarter, mass cargo deliveries are expected in 2027.

4. HighPeak energy looking to merge due to Russian invasion of Ukraine and COVID

HighPeak Energy, a relatively small oil-production company, is delving into a potential merger. Large-scale energy producers have profited off high oil prices arising from COVID-19 recovery and supply disruptions caused by Russia’s invasion of Ukraine, however, small energy firms haven’t been able to bring in similar levels of investment interest. Therefore, merging becomes a lucrative yet sensible option. HighPeak Energy CEO Jack Hightower states “the Board and I believe now is an opportune time to capture the value we do not consider is presently reflected in our share price."

So what does the future of M&A in the energy sector look like?

According to analysts, there are two major changes which are expected to occur overtime within the energy sector.

Firstly, more mergers are expected to take place. As demonstrated by the Highpeak energy case, relatively smaller energy firms simply aren’t reaping the same benefits of the rise in oil prices, and thus may look towards merging with larger firms.

Furthermore, renewable energy may receive more attention and investment within the energy sector, not just for environmental reasons, but also due to the uncertainty and fluctuations occurring within non-renewable energy supplies. Thus, it would not be out of sorts to suggest greater investment towards solar and wind energy firms, as well as large firms acquiring solar, wind and gas portfolios.

Overall, it would be sensible to expect major changes in investment behaviour within the energy sector, as international supply-side shocks continue to distort the market, and cleaner and greener alternatives begin to take the spotlight.

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