Any oil and gas merger-and-acquisition momentum from Devon Energy Corp.'s recently announced acquisition of fellow Permian Basin driller WPX Energy Inc. will likely not trickle down to the midstream sector despite a consensus that consolidation is warranted, industry analysts said.

The approximately $12 billion, all-stock deal is a merger of equals and garnered mostly positive reviews as fallout from the COVID-19 pandemic and historically low oil prices is shrinking the North American upstream universe. But replicating that further downstream presents "a lot more headwinds than tailwinds," according to Raymond James & Associates Inc.'s Justin Jenkins.

With the largest pipeline firms hesitant to significantly change their balance sheets after a round of dividend and spending cuts, there is structural resistance to doing corporate-level deals especially when gathering and processing assets — which are more exposed to oil price volatility — are involved, according to analysts.

"We'd love to see some of the larger well-capitalized strategics or private equity do more bidding in the space to get a better sense of things, but it's more of a wish or a hope than a reality," Jenkins said.

Some midstream companies are also waiting for their own stock prices to fully recover before nailing down potential takeover targets. Energy Transfer LP has seemingly taken itself out of the running for the time being after Chairman and CEO Kelcy Warren said in August that "it is very difficult for us to even contemplate anything really because our units are trading so poorly."

That continues to be a concern given how WPX and Devon shares have performed since the merger announcement, Mizuho USA Securities Managing Director Gabriel Moreen said. After spiking 16% and 11%, respectively, on Sept. 28, both stocks have already lost some of those gains.

"I think one of the things needed to spur pipeline M&A would be a positive investor reaction to seeing it happen on the upstream side. If that happens, I think the pressure for midstream companies to get together gets bigger," he noted in an interview.

Analysts at Scotiabank wrote in a Sept. 21 note to clients that while Plains All American Pipeline, L.P. is "the most topical name ... as an M&A target" and could be of interest to Enterprise Products Partners L.P., such a merger would increase Enterprise's gathering exposure.

"An [Enterprise] purchase of [Plains] ... could dilute its current valuation given the premium EPD enjoys from having highly contracted long-haul pipelines and downstream infrastructure versus gathering assets," the Scotiabank analysts said.

Enterprise, for its part, would only be looking for bolt-on, asset-level opportunities in the near term, Enterprise co-CEO and CFO Randall Fowler noted in July.

In addition to Plains, Raymond James' Jenkins said investors have also identified NuStar Energy LP, Crestwood Equity Partners LP and Targa Resources Corp. as midscale firms that could attract bigger midstream buyers, and the Scotiabank analysts agreed that no deals are likely to happen ahead of the November elections.

"It seems unlikely to us that any party would want to engage in M&A less than two months ahead of the U.S. presidential election. A Trump victory should be supportive of midstream valuations as it would likely kick the energy transition further down the road to some degree," the Scotiabank analysts said.

At the same time, no political outcome will provide more certainty concerning whether oil prices and production stagnate or recover in 2021, 2022 and beyond because "the difficult backdrop for energy is likely to persist regardless," Mizuho's Moreen said.

Private equity, Moreen and Raymond James' Jenkins added, is also sitting on the sidelines for now given its own challenges with existing midstream investments, eliminating another category of potential buyers.

In the meantime, pipeline companies will likely stick to asset additions and "swaps" similar to Inter Pipeline Ltd.'s agreement with Plains to acquire the partnership's Milk River crude oil pipeline system in exchange for Inter Pipeline's 100% and 50% ownership interests in the Empress II and Empress V natural gas processing plants, respectively.

"The sense I get from talking to some management teams is that ... anything outside of merger of equals seems off the table at this point," he said.