Power & Energy Q4 2020

Q4 2020 Power Energy

M&A Transaction Trends

Industry Trends

COVID-19 Impact on M&A

Total M&A transaction volume for the Power & Energy industry between March 22 – December 31 is down 19% (320 transactions) compared to the same period in 2019 (395 transactions). Utility Transactions, a subsector of the Power & Energy industry, accounted for nearly 59% of the transactions (188 transactions) closed between March 22 – December 31, 2020. In a distant second place, companies engaged in Oil and Gas Storage and Transportation make up nearly 17% of volume in the same time frame (53 transactions). Strategic buyers drove over 81% of transactions between March 22 – December 31 (249 transactions). Similarly, 2019 saw over 82% of transactions (306 transactions) completed by strategic buyers within the same period.

Short Term Oil Demand Is Bleak in Rich Countries

The International Energy Agency (IEA) cut its forecasted recovery in oil demand for 2021 by 170,000 barrels a day after analysts expected a lift in economic activity due to the COVID-19 vaccination programs. The agency has lowered its demand from the previous quarter by 50,000 barrels a day. After another wave of infections forces a return to lockdown measures in Europe, the IEA expects a weak final quarter in 2020. The resurgence is "almost entirely due to China's fast rebound from lockdown" according to IEA and states that the demand is bleak for wealthy countries.¹

Senate Committee Passes Bill to Preserve Existing Nuclear Plants

The Senate Committee on Environment and Public Works has Approved the American Nuclear Infrastructure Act of 2020 (ANIA). The bill's main provisions include strengthening the nuclear fuel supply chain, helping to incentivize commercial deployment of new reactor designs, and preserving existing nuclear reactors at risk of premature shutdowns. The bill dedicates a significant portion to expanding nuclear energy throughout the U.S. utilizing advanced nuclear technologies. The outlook for the renewable energy industry in 2021 looks positive.²

Pacific Northwest Set to Test 100% Renewables

With growing support and pressure to transition from oil to renewables, the Pacific Northwest appears to be the best region to test 100% renewable energy. The Northwest Power and Conservation Council (NWPCC), which seeks to meet long-term electricity needs with new power resources, is preparing to present its 2021 Northwest Power Plan to Congress. The biggest challenge for the Council will be finding a favorable mix of wind, solar, storage, nuclear, and hydropower to provide carbon-free energy at an affordable cost.³

Exxon Mobil Pushes New Climate Change Plan

After multiple activist investor groups targeted Exxon Mobil for its recent financial underperformance along with climate change concerns, the company has released a five-year plan to become an industry leader in "greenhouse gas performance across its businesses." Exxon has not provided any plans beyond five years in its plan, which contrasts with some of its U.S. peers like ConocoPhillips, discussing a net-zero emissions future and a world of lower oil demand. Activist investors are disappointed with the new plan and state that "while reducing emissions intensity is important, the plan doesn't position the company well for long-term success."⁴

U.S. Energy Secretary Looks for Alternative Methods to Transport Middle East Oil

Days after an oil tanker was hit by an explosion from an "external source" off of Saudi Arabia's coast, outgoing U.S. Energy Secretary Dan Brouillette is looking into alternate transportation methods for oil and gas from the Middle East to ensure better regional energy security. As the secretary leaves his post, Gulf leaders question how Joe Biden will engage with the region on issues regarding oil security and transport. ^{5 6}

Renewable Energy Gaining Cost Competitiveness

The 2020 edition of the Projected Costs of Generating Electricity is a report that is jointly published by the IEA and the Nuclear Energy Agency (NEA) every five years. This year's edition projects that by 2025, renewable energy sources will compete with traditional fossil fuel generation costs, which are currently at $1,000/kW. The agencies project that onshore wind could have the lowest levelized cost of electricity, and nuclear power could emerge as the low-carbon technology with the lowest expected cost. ⁷

Dominion Energy Plans for Largest Offshore Wind Project in U.S. History

Dominion Energy has filed the construction and operations plan for a 2.64 GW offshore wind project, expecting construction to begin off Virginia's coast in 2024 with its completion in 2026. The wind project would be the largest in the U.S. to date and could power up to 660,000 homes upon completion. The project is estimated to generate approximately $5 million per year in local and state tax revenue during construction. According to a Magnum Economics study, the project would generate $210 million annually when completed.⁸

Saudi Arabia/Russia are Boosting Oil Production Amid Pandemic

Saudi Arabia and Russia debated whether their producer's alliance (OPEC+) should boost their crude oil output during a resurgence of COVID-19, and a deal was reached. OPEC+, which consists of 13 Saudi producers and 10 Russian producers, had already agreed to increase oil production by 500,000 barrels a day in December, which brought their net cut since the start of the pandemic to 7.2 million barrels per day. Saudi Arabia will voluntarily reduce its production by 1 million barrels per day (bpd) in February and March after Russia pushed to increase output, worried about U.S. shale capitalizing on the group's cuts.⁹

Green Energy Initiatives Shift Focus to Hydrogen

Industrial gas producers shift focus to hydrogen and other clean energy as policymakers are expected to ramp up legislation on green energy in coming years. The hydrogen market is forecasted to grow 10-fold by 2050 as politicians and executives pledge billions of dollars to expand hydrogen usage into commercial transport, heavy industry, and energy storage. Competition is likely to rise in the coming years as Shell, BP, and other oil companies set their sites on the rapidly growing hydrogen market.¹⁰

Largest Transactions Closed

Target
Buyer
Value($mm)

Natural gas transmission and storage of Dominion Energy, Inc.
Berkshire Hathaway Energy Company
$8,000.00
Tallgrass Energy, LP
GIC Special Investments Pte. Ltd., The Blackstone Group Inc., Enagás, S.A. and the National Pension Service
$7,367.16
Cheniere Energy Partners, L.P.
The Blackstone Group Inc. and Brookfield Infrastructure Corporation
$7,000.00
Pattern Energy Group Inc.
Canada Pension Plan Investment Board
$6,414.29
Alaska Operations of BP p.l.c. and BP Pipelines, Inc.
Hilcorp Alaska LLC
$5,600.00
El Paso Electric Company
J.P. Morgan Asset Management, Inc.
$4,332.63
Vivint Solar, Inc.
Sunrun Inc.
$3,638.22
International-Matex Tank Terminals, Inc.
Riverstone Holdings LLC
$2,685.00
EQM Midstream Partners, LP
Equitrans Midstream Corporation
$1,780.27
Cooper Lighting, LLC
Signify N.V.
$1,400.00