03 June 2015
Mergers and Acquisitions
The stage is well and truly set for further increased merger and acquisition activity in the global oil and gas industry, according to analysts, coming on the back of a 10-year high last year in terms of deal value and volume. But some have warned the window of opportunity could be shorter than expected.
EY’s 12th biannual Oil & Gas Global Capital Confidence Barometer reported 99% confidence in the deal market improving or remaining stable over the next 12 months, with additional M&A activity forecast for the middle-market of transactions of less than $250million.
It followed similar findings from A.T. Kearney in its Oil & Gas M&A study. Richard Forrest, global lead partner for the energy practice and co-author of the report, said independent oil companies’ success in M&A would be determined by balance-sheet strength and varying levels of exposure to assets with higher breakeven oil prices.
Financial investors were likely to acquire in the oilfield services sector, which would continue to be hit hard as operator margins are squeezed which is expected to impact on service providers. The study says the outcome is significant potential for consolidation, with investors with capital to invest continuing to be active while new entrants such as large engineering companies could make strategic moves to enter the market. It also highlights the window of opportunity could be shorter than expected and will be driven by oil price expectations
Influencing profile among investors to achieve a satisfactory result for all parties is desirable and achievable. By focusing, for example, on successful applications of subsea or drilling technology or provision of industry-leading decommissioning services that can reduce cost and risk, the valuation gap between buyers and sellers can be narrowed.