00:00Let's take a closer look at the energy sector and deals there with Landy Spotswood.
00:04She's partner M&A and capital markets at Vincent & Elkins,
00:07and she has advised on more than $500 billion of M&A transactions with a focus on energy.
00:13And she joins us now for Premium Players.
00:15Landy, thank you so much for joining.
00:16Thank you for having me, Danny. It's good to be here.
00:18This is a sector that, again, you know extremely well, you've seen a lot,
00:22but this time around it's oil prices that have been extremely volatile,
00:25jumping from above 100 on Brent to below.
00:28What has that shift in volatility done to M&A markets?
00:32I think the key, if I was trying to sum it all up in one phrase,
00:37volatility in energy M&A practice has made perfect.
00:42We've had a lot of practice with volatility lately,
00:46and dealmakers have gotten used to it, and they've started to move through it.
00:51I think that cash deals for upstream,
00:55you're just not going to see those get announced relatively soon.
00:59I think when there's an expectation we'll know more about the future strip
01:04two weeks from now than we do now,
01:07you're just not going to see people pull the trigger.
01:09But I do think talks are continuing.
01:12I think activity is going to continue,
01:14and volatility is the new normal.
01:16Does it, though, make it difficult to agree on a price if the underlying commodity is moving around a lot?
01:21It does, and particularly a cash price, right?
01:24And so if you're, I was in Midland last week
01:29and talking to clients who are kind of pure play, Permian producers,
01:34and they've seen a lot of assets get pulled that were in the market.
01:38We've seen that with processes we're working on
01:40because it's just hard to agree what something's worth
01:43when you don't know what the price is going to be a year from now, two years from now.
01:48And, you know, you can just wait and see.
01:51If this continues the way it has
01:56and there's just uncertainty about when this trade's going to reopen,
01:59I do think the deal activity will continue
02:02because that's what all the macro's pointing towards.
02:06And to your point, we're used to that.
02:08We know how to handle volatility.
02:09But if the net impact, even if this war would resolve itself in a more timely fashion,
02:14there's been this expectation that oil and energy prices settle just at a higher rate
02:19because it takes a while to restart oil fields,
02:21that we know that there's this risk that exists.
02:23What change would that mean to see oil just structurally settle at a higher level from here?
02:28I think that would be gangbusters for Energy M&A.
02:31And I do think that's what we would expect
02:34if you see this resolved in the next month or so
02:37without too much more long-term damage to assets in the Middle East.
02:42And so what you would see is prices reset maybe closer to where they are now on the forward curve.
02:49And that would make energy companies healthier.
02:51It would make them more willing to invest, stronger balance sheets, buyers more aggressive,
02:58and all the long-term macros towards consolidation.
03:01So a lot of the oil majors, Exxon, Chevron,
03:04some of the shale producers like ConocoPhillips and Diamondback,
03:07they've done acquisitions.
03:08Have they fully digested those?
03:10Are you seeing the pipeline?
03:11Are they ready to come back for second bites?
03:14It's this is a year where, yes, I think there was a lot of large-scale M&A
03:21that got held up too long in the FTC during the last year of the Biden administration.
03:27Those big deals are starting to be fully digested.
03:31And what people sometimes don't remember,
03:33if you're not in this space every day like I am with these energy companies,
03:36is they're in the business of selling their assets every day.
03:39And so you have to constantly be thinking about the next place to grow
03:44or you're going to get smaller.
03:46And so I do think they're ready to do more deals if you can find the right one.
03:52I mean, to that point on the regulatory landscape,
03:54I mean, Scarlett was just talking about news coming from Semaphore
03:56that JetBlue was looking at maybe combining itself different from your world, I realize.
04:00But it's a deal that they had attempted before and couldn't in the Biden administration.
04:05What has the regulatory landscape of having a more deals-friendly type of administration
04:11done to the energy patch?
04:13I think we've seen it in two ways.
04:16One, I think it's a regulatory environment that is much more friendly towards development generally,
04:22the building of large-scale infrastructure in a way that the Biden administration wasn't.
04:27So I'm seeing clients deploy capital towards building big projects, big pipeline projects, big data centers
04:34that maybe isn't M&A exactly, but it's definitely taking advantage of a different type of regulatory environment.
04:43On the antitrust side, I think there's two big differences.
04:47One, I think there was some just general political overlay that was negative for consolidation in the energy space.
04:58During the Biden administration, there was a lot of inflation concerns.
05:02People were focused on gasoline prices, and they weren't friendly.
05:07Don't we still have that, though?
05:07Isn't this administration really concerned about gas prices and affordability?
05:12Yes, but what I was going to say is it wasn't always deals that were going to actually impact gasoline
05:19prices that were being focused.
05:20We would see some natural gas combinations that I think your viewers were sophisticated enough to know
05:28that natural gas mergers don't tend to impact gasoline prices, but it makes a good headline if you're trying to
05:34play politics.
05:36So we've seen less of that.
05:39There's not going to be that.
05:41And there's also just this administration, I think, has less sincere cynicism about scale generally.
05:49I think under Lena Kahn, there was just this discomfort with big, even if there wasn't a clear competitive problem
05:58that could be pointed to in a deal.
06:00And I think there's less of that here.
06:02And I also think there's a desire to move faster in getting things through.
06:06So I do think it's a friendlier antitrust world to do large energy deals than it was two years ago.
06:15Landy, this has been so fantastic.
06:16You have to come back and join us soon.
06:18I would love to come back.
06:19Thanks for having me.
06:19Really appreciate your time.
06:21That's Landy Spotswood, partner M&A and Capital Market at Vinson and Elkins.
06:25Elkins, rather.
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