A new report titled ‘Mergers and Acquisitions in Oil and Gas’ by A.T. Kearney has predicted a significant increase in mergers and acquisitions (M&A) in the oil and gas sector this year, as a result of oil prices dropping below US$50/bbl. The pricing pressure is intense and is challenging cash flows, so oil companies of all sizes are expected to need to have a clear response to the situation. The study expects companies to respond, as they did in the late 1990s, with M&As to reshape the competitive landscape to their advantage.
M&As in oil and gas showed a strong recovery last year after a slow 2013, and with recent oil price decreases and OPEC’s decision not to cut output, 2015 is set to witness even further M&A activity across the value chain. These strategic deals will be key to growing value and aiding companies to navigate market turbulence.
Richard Forrest, Global Lead Partner for Energy Practice and a study co author at A.T. Kearney said, “strategic approaches to M&A are critical to address the intense cost and cash flow pressures experienced by oil and gas players. Our analysis and discussions with industry executives revealed the likely onset of a new wave of mergers and acquisitions across the value chain in the next 6 – 12 months. The window of opportunity may be shorter than expected, and will be driven by oil price expectations. Those companies with strong cash flow and healthy balance sheets will be able to leverage opportunities, while others will need to define strategies just to survive.”
All players in the industry can benefit from a strategic approach to M&A, including IOCs, NOCs, independent oil companies, service sector businesses and financial investors.
Vance Scott, Global Oil and Gas Practice Leader and study author at A.T. Kearney commented, “we expect to see the largest M&A deal value as well as largest share of deals in the upstream segment where focus on improving performance on a US$/BOE basis will dominate. E&P players will drive internal effectiveness measure and portfolio repositioning that will encompass entire company sales and mergers. Consolidation in midstream will continue to be driven by the MLP advantage, whereas oilfield service producer consolidation will be driven by business volume changes and cost reduction needs. Across sectors, the companies that best anticipate, and prepare to take advantage of the fast moving and volatile market will be in a much stronger position than their peers.”
Edited from press release by Claira Lloyd