The A&D hot streak continued in first-quarter 2017 with a record $73.04 billion in announced deals, but a creeping uncertainty is emerging over whether deal momentum can keep up with the breakneck pace of sellers’ expectations.

U.S. shale was particularly sought after following a strong fourth-quarter 2016, with the Permian Basin again enjoying the largess of values, according to PwC’s Deals Practice. That carried into the first three months of 2017, 32 announced deals, led by a wave of megadeals, increased values year-over-year by 160%.

Upstream remained red-hot: 32 deals worth $36.6 billion were announced, a 304% increase in deal value, and a 68% increase in deal volume, year-over-year, PwC said.PwC First Quarter 2017 Value Volume By The Numbers Chart

“As we forecast, 2017 M&A activity started at a blistering pace with $49 billion of announced deals in January alone—40% higher than the total for any of the previous first quarters since 2010,” said Doug Meier, PwC’s U.S. oil and gas sector deals leader.

However, Meier said he sensed a minor pullback as the quarter came to a close.

“Did seller optimism get a little ahead of the market? Did we have a little too much enthusiasm for the recovery and for what that enthusiasm meant for valuation?”

One potential headwind is a widening of the bid-ask spread as sellers come to expect high values for their assets.

“Second-quarter deal activity will likely be heavily influenced by the ability of buyers and sellers to bridge this emerging valuation gap,” PwC said.

As was the case for most of 2016, the Permian Basin set the pace for shale plays with 20 deals valued at a record high $21.36 billion.

Overall, 28 shale deals worth $24.62 billion were announced in the first quarter. Attention and money flowed to low-cost production basins with existing infrastructure. The Eagle Ford was the second most active basin with five deals worth $6.85 billion.

Global Data Announced Shale Deals For First Quarter 2017 Map

Generally, privately-held companies, including private-equity backed firms, continued to feed public E&Ps appetite for oil and gas assets by readying for sales or beginning the IPO process.

The focus on shale, however, has put deepwater assets that are harder to develop out of favor.

“Major players, such as IOCs, are changing their strategic portfolio positions, increasing their exposure to onshore acreage,” said Seenu Akunuri, PwC U.S. oil and gas valuation practice leader. “This is reaffirming U.S. shale is becoming the swing producer, at the expense of projects in deepwater and Gulf of Mexico.”

Midstream A&D activity also picked up and as companies restructure their operations or dropped down assets.

In the first quarter, 14 midstream deals were announced in the first quarter, flat compared to first-quarter 2016. Deals were valued at $34.87 billion—about 47.7% of the quarter’s total deal value.

The largest deal in the quarter was a midstream deal, contributing $17.2 billion in value. Another four midstream deals generated $15.7 billion.Global Data Megadeals Volume and Value Graph

Company IPOs remained in the mix, as three companies completed market offerings in the first quarter. IPO-preparation activity increased sharply during the first quarter with an anticipated increase in IPOs in the second quarter of 2017. However, PwC experts sounded cautionary alarms as offerings make their way to market.

While IPO volumes were consistent in the fourth quarter and in first-quarter 2017, “continued optimism and confidence in the capital markets is not a given,” said Joe Dunleavy, a partner at PwC Capital Markets Advisory.

“Companies and investors will need to be agile and able to respond quickly to changing market conditions,” he said.

Rob McCeney, a partner in PwC’s U.S. energy and infrastructure division, warned that “we could run into an expectation gap that could result in tempering the activity in the quarters to come.”

Darren Barbee can be reached at