Low Oil Prices To Spur More M&As In Oil & Gas Sector

The oil and gas sector is set to see increased deal activity across the world as a result of low oil prices, the latest report from consulting firm AT Kearney showed.

The report said that mergers and acquisitions in the oil and gas sector showed strong growth in 2014 after a slow year in 2013.

Meanwhile the fall in oil prices and the decision of OPEC to not cut output in 2015 are the main factors that will spur M&As this year, the report added.

Oil prices are down more than 50 per cent since June 2014.

“Strategic approaches to M&A are critical to address the intense cost and cash-flow pressures experienced by oil & gas players,” said Richard Forrest, global lead Partner for the Energy Practice and co-author of the Oil & Gas M&A study, A.T. Kearney.

“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 six to 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.”

The report said that international oil firms will look towards optimising their portfolios while national oil firms’ M&A activity might be impacted by the agenda of their host government and near term domestic needs.

It also said that all industry players including international and national oil companies are expected to benefit from improved deal activity in the Middle East.

“However, lower oil prices may well mean less cash available to potential buyers, so any moves made will be very selective,” cautioned Jose Alberich, partner, A.T. Kearney Middle East.

“All activity will be carefully considered, with NOCs reassessing strategies to ensure proactive moves fit their mandate and government objectives.”

Although deal activity has grown in the region, M&As in the oil and gas sector have been comparatively slow.

One of the biggest deal in the energy sector last year in the Middle East and Africa region was the sale of a Nigerian oil block and an associated pipeline by Royal Dutch Shell for $2.5 billion to a consortium led by Africa-based Taleveras Group.