Depressed oil prices will force oil and gas companies to seek scarce buyers in a debt-driven shakeout, according to A.T. Kearney’s Oil and Gas M&A Outlook
The report, released today, reveals that 2016 will be a pivotal year for all oil and gas companies as they look to complement their aggressive capex and cost reductions with divestitures, mergers, and acquisitions.
Globally, companies with weak balance sheets will be forced to offload assets and seek partners to support their cash position as funding options dry up, while companies in a stronger financial position will have the opportunity to capture reserve and merger synergies.
Richard Forrest, A.T. Kearney’s global lead partner for Energy Practice and co-author of the report, said, “There will be ample opportunities for potential buyers, and we expect to see a surge in assets and companies up for sale.
“Despite the drop in oil prices since mid-2014, the low-cost Gulf producers remain largely profitable. However, continued fiscal pressure will push many countries and their national oil companies to focus on internal operational efficiency and economic diversification rather than large-scale international M&A. With the increased focus on value and job creation as well as diversification, new partnership opportunities will arise for international players,” added Ada Perniceni, partner, A.T. Kearney.
In 2015, oil and gas M&A activity was limited with only a few major deals dominating headlines such as Shell’s US$81.5bn acquisition of BG Group. Midstream deal value rose by 68 per cent, with the Energy Transfer Equity–Williams deal in the lead. Master limited partnerships (MLPs) largely contributed to this increase, making up well over half the total deal value.
However, total upstream deal value declined by 13 per cent; if the impact of the outsized US$81.5bn Shell–BG deal in 2015 is excluded, total upstream deal volumes dropped by 54 per cent. Oilfield services total deal volume declined 61 per cent, and with the exception of the Cameron International–Schlumberger transaction, the top 10 deals involved financial investors rather than incumbent firms within the industry purchasing oil and gas assets.
International oil companies (IOCs) will focus on structural cost reduction and portfolio high-grading, making selective acquisitions and continuing divestment programmes, especially in unconventional resources, more likely than mega-mergers. BP, Chevron and Shell, for example, have announced over US$45bn in combined asset sales over the next few years.
The report forecasts that geopolitics will have a major impact on M&A activity as fiscal austerity will limit M&A in the Middle East, while in China opportunistic oil and gas M&A will play well into Xi Jinping’s “One Belt, One Road” vision. In addition, 2016 will bring consolidation as smaller companies become targets or start to consider creative financing options.
