Oil Price Uncertainty and M&A Activity.

The article investigates the impact of oil price uncertainty, measured by the implied volatility of West Texas Intermediate (WTI) crude oil options, on mergers and acquisitions (M&A) activity within the U.S. oil and gas sector from 1994 to 2018. Analyzing 4,323 transactions, the study finds a significant negative relationship between oil price uncertainty and future M&A activity, particularly affecting horizontal and vertical deals, with upstream firms (exploration and production) more sensitive to uncertainty than downstream firms (refining and marketing). These results support the real options theory, suggesting firms defer investments under higher uncertainty to preserve the option value of waiting, rather than engaging in M&A for risk management purposes. The findings are robust across aggregate industry-level and firm-level analyses, controlling for political, market, and macroeconomic uncertainties, and highlight that diversifying acquisitions are less sensitive to oil price uncertainty. The study focuses exclusively on the oil and gas sector and does not generalize its conclusions to the broader economy.