By Velda Addison, Hart Energy
Let’s make a deal could be the mantra for the end of 2015 and 2016 as persistently lower commodity prices cause companies to ponder acquisitions and mergers.
“Declining M&A activity in the oil and gas sector in the first part of the year resulted from, in part, a lack of quality assets on the market,” Andy Brogan, EY global oil and gas transactions leader, said in Dec. 3 news release about M&A activity. “That’s changing and now we’re seeing companies looking at multiple acquisitions. Fifty-eight percent of executives already have three or more deals in the pipeline compared to just 12% six months ago.”
A survey released by EY showed that 67% of oil and gas executives surveyed a plan to make a purchase within the next 12 months, compared to 56% six months ago.
The findings are part of EY’s Oil & Gas Capital Confidence Barometer, which was unveiled in October.
Deals valued at less than $250 million are expected to dominate activity. Following the middle market is the upper-middle market, with deals ranging in value from $250 million to $1 billion.
Companies are streamlining their portfolios and getting even more focused as they get more accustomed to current market conditions with depressed commodity prices. Many are spotting and pursuing deals.
On Dec. 18 BP Plc said it purchased interests in the Northeast Blanco Unit in the San Juan Basin from Devon Energy Corp. The transaction marked BP’s first major purchase in the Lower 48 in seven years.
Several others are also adjusting their portfolios, looking to free up cash.
But closing and competition remain among the main challenges.
EY reported that in the last year 83% of companies either failed to complete or canceled a planned acquisition.
Brogran added, “Competition from other buyers tops the list of challenges facing companies pursuing acquisitions. Concerns about regulatory or antitrust reviews and a widening valuation gap are also influencing executives’ willingness to withdraw from acquisitions.”
Here is a look at some additional findings from the survey:
- 88% of oil and gas companies expect the M&A market to improve, up from 50% of the respondents a year ago;
- 48% of the companies surveyed said they plan to pursue acquisitions outside of their own sector;
- 55% of the companies surveyed have at least three deals in their pipelines; and
- 60% are focusing on technology or R&D to achieve organic growth within the next 12 months.
“There’s a stronger sense of determination across the oil and gas industry that’s setting the stage for a more active M&A market in the year ahead,” Brogan added. “Executives continue to focus on conserving cash and reining in costs but are considering acquisition opportunities more seriously. Transactions will play a major role in determining who survives the downturn in prices.”
More than 1,600 executives from across the world participated in the biannual survey, which was conducted by the Economist Intelligence Unit. More than 100 participates were from the oil and gas industry.
Velda Addison can be reached at firstname.lastname@example.org.
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