Whether discussing an individual, organization, or company, delivering on promises involves bridging the gap between expectations and reality. Often, the closer we are to our best selves, the happier we are. The most effective candidates for public office align policy with the consensus wishes of their constituents. A company must juggle the needs of its employees, customers, shareholders, and the communities it serves. The list goes on.
The stakes are higher when it comes to delivering on promises in the energy sector. After a rip-roaring 2021 where the energy sector went from the worst-performing sector of the economy to the best performing (as measured by equity returns), expectations were set for 2022 to sustain the boom (see “Mergers & Markets: 2021 Year In Review,” December 2021 Gas Compression Magazine, p. 6). Yet, as geopolitical events escalated starting in late February 2022, there was a renewed emphasis on energy security, reliability, and cost (see “Russia’s Power Play,” April 2022 Gas Compression Magazine, p. 38).
The energy sector had a tall order in 2022. As a collective unit, it delivered on its promises to stakeholders without losing sight of the big picture. We’ll briefly discuss the ways in which the energy sector exceeded expectations in 2022, and then call out some of the year’s most notable mergers and acquisitions (M&A) and market-moving developments
The Energy Sector’s Greatest Challenge
Regular readers of Mergers & Markets will be familiar with the expectations imposed on energy companies by shareholders. Publicly traded companies are tasked with creating long-term value, which is no easy feat considering the wide array of options available. For example, a fast-growing young company primarily drives value through organic growth. Established companies in mature industries generally don’t grow as fast, but they can still deliver value with superior capital allocation, timely M&A, and a healthy capital structure that isn’t overly reliant on debt. They can also repurchase stock or consistently raise a dividend to provide a source of passive income, which takes the pressure off growing revenue and earnings at a market-beating pace.
After the oil and gas downturn of 2014 and 2015, Wall Street’s tolerance for over expansion and high leverage halted. The objective shifted from expansion to a preference for … Click Here To Continue Reading This Article In The December Issue.
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