Oil and gas companies gearing up for transactions post slump

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The FINANCIAL — More than half (56%) of global oil and gas executives are ready to transact in the next 12 months (60% expect to complete at least two deals) according to EY’s 12th biannual Oil & Gas Global Capital Confidence Barometer.

The global survey of 112 oil and gas company executives among more than 1,600 executives overall reveals appetite for M&A in the sector has rebounded sharply over the last six months as the implications of the oil price crash have been digested.

Andy Brogan, EY’s Global Leader Oil and Gas Transaction Advisory Services, says:

“Transaction activity may have hit a five-year high in 2014, but the first quarter of 2015 was one of the quietest in recent years. The sudden and steep drop in oil price forced many companies, particularly those in upstream and oilfield services, to adopt an intense internal focus — aggressively cutting spending and costs. Transaction opportunities in the form of mergers and divestments have been delayed by uncertainty over oil price outlook. Now those acquisition opportunities, coupled with increased confidence in the global economy, are setting the stage for increased M&A activity.”

An overwhelming 99% of oil and gas respondents expect the deal market to improve or remain stable over the next 12 months and 97% expressed similar confidence in the global economy.

Increased focus on middle market deals

A combination of the types of opportunities available and relative valuations means more M&A activity is expected in the middle-market. Seventy-four percent of oil and gas companies currently pursuing transactions are considering deals of less US$250m.

Stable valuations enable deal making

Eighty-five percent of global oil and gas executives now expect the valuation gap between buyers and sellers to remain at bridgeable levels. This will encourage deal-making in the near term.

Cost reductions and operational efficiencies top boardroom agenda

For most of the last three years, growth occupied the strategic agenda for oil and gas companies. Now the focus is on portfolio optimization, managing the cost base and risk profile in today’s challenging environment. The Capital Confidence Barometer shows 63% of oil and gas executives — three times as many respondents than in April 2014 — are dedicated to reducing costs and improving operational efficiencies while continuing to look for opportunistic acquisitions in the year ahead.

Brogan says: “Innovation, complexity and disruption are defining a new M&A market in the oil and gas sector. While increased optimism is driving greater appetite for deals, challenges persist. Commodity price uncertainty and geopolitical volatility will continue to influence transaction decisions. Companies that exercise capital discipline and maintain optionality will come out on top.”

 

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