The impact of the COVID-19 pandemic drove merger and acquisition (M&A) deal volumes and values into the ground, and since 2020, energy companies have endured continued disruption that has kept an M&A rebound at bay.
As global financial, political and business leaders grappled with soaring interest rates in 2021, many transactions remained on hold while the global economy recalibrated. Russia’s invasion of Ukraine, President Trump’s swathes of regulation and tariffs, and conflict in the Middle East have all added cumulative pressures that haven’t yet delivered a window of opportunity for M&A deals to resurge.
Corporate ambition has changed.
Whereas M&A was a key strategy pinned to bold growth targets, including decarbonization, energy sector leaders are now focusing on security, stability and strategic positioning.
M&A strategy: Issues and opportunities
| M&A strategy: Issues and opportunities | Opportunities achievable through M&A |
|---|---|
| Looming potential for oil price drops: Volatile commodity prices could tighten valuation models and shift focus to cost cutting and balance sheet strength. | More control over integrated value chains: Acquirers can implement robust risk controls across several links of the chain, reducing the risk of disruption, alongside capturing more margin. |
| Escalating operational costs: Pinched margins are putting cost discipline in focus, making energy companies more selective, slowing M&A momentum and pushing deals to focus on efficiency and resilience. | Operational efficiencies through consolidation: By combining assets, streamlining overlapping operations, standardizing processes, improving resource allocation and reducing duplication, M&A boosts operational efficiencies. |
| Supply chain volatility: In mobilizing alternative supply chains that are less reliant on politically-exposed countries, companies are reassessing supply dependencies and valuation models, making M&A more risk‑adjusted and cautious. | Technology-enabled operating models: Upgrades and investment in technologies improve reliability and enhance operational stability while accelerating innovation across the portfolio, enabling companies to remain competitive in a clean energy future. |
| Tariffs, trade and geopolitical tensions: Geopolitical events such as U.S. engagement in Venezuela or tensions in the Middle East affect asset valuation, risk adjusted returns, and timing of transactions. | Energy security: Geopolitical instability increases the premium on secure, reliable energy supply. Companies that pursue acquisitions to ensure access to resources, infrastructure, and strategic basins could mitigate geopolitical exposure. |
| The Energy Profits Levy and other windfall profits taxes: During periods of higher oil and gas prices, jurisdictions such as the U.K. introduced even higher taxes (even in circumstances where the energy had been forward sold at previously lower prices) impacting profitability. |
M&A dealmakers across the energy sector are challenged with striking the critical balance: hedging against the fallout from geopolitical unrest (volatile commodity prices, disrupted supply chains, soaring operating costs and capital pressures), while positioning for a new energy future.
Investment trends: Buyers are investing in key technologies
Dealmakers are focusing on acquiring assets with stable cash flows and strategic value to protect the value chain.
Technology trends and targets
| Sector technology trends | Technology targets |
|---|---|
| Upstream | Digital oilfield, automation, basin integration, emissions reduction |
| Midstream | Gas and liquified natural gas (LNG) technology, grid enabling assets, storage technologies |
| Downstream | Specialty chemicals, hydrogen and carbon capture, utilization and storage (CCUS), digital refining |
Why energy M&A transactions are at risk
Oil and gas M&A deals are exposed to a complex network of risks that have the potential to derail a transaction, including:
- Commodity price volatility and valuation risk: Volatility shrinks deal pipelines and increases uncertainty around future cashflows, making acquirers cautious. Deals may be timed poorly, overvalued/undervalued, or abandoned due to rapid price shifts
- Tariffs, regulation, and geopolitical uncertainty: Energy sector supply chains have faced disruptions due to tariffs, vessel fees, and global policy shifts, affecting operational assumptions in deals. Acquired assets may not deliver expected returns if supply chain constraints erode margins
- Valuation uncertainty: In many regions, valuations (especially in hotspots like the Permian Basin) have risen sharply, creating risk of overpayment. Volatile markets have made seller expectations inconsistent, contributing to valuation gaps that can stall deals
- Integration risks: Mismanaged integration leads to lost synergies, cultural conflict, and operational disruption
- Tax risks: Oil and gas M&A often involves a target business with significant deferred tax assets/carried forward losses (often into the billions of dollars). “These can be a huge driver of value if they are available to offset against future profits. We have frequently seen tax insurance being used to insure against the risk of the availability of those losses being challenged”, Stafan Farahani, International Head of Tax & Contingent Insurance, Mergers & Acquisitions, Transactional Risks, FINEX Global, Willis
Although deal volume in some oil and gas segments has fallen, overall deal value has surged, indicating fewer but much larger, more strategic transactions. With high values at stake, insulating the transaction from shocks will demand a sophisticated risk strategy.
Insurance and risk solutions can help manage valuation uncertainty, tax exposure, operational integration threats, and regulatory risks.
Download the full article to find out which five key steps dealmakers can take to build a robust transaction risk strategy.
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| Title | File Type | File Size |
|---|---|---|
| Stability, scale and strategic positioning: Energy sector M&A trends to watch in 2026PDF | 1.7MB |
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