OIL M&A: LIFE OR DEATH
Cheap takeover targets in bombed-out sectors of the market have driven M&A activity to seven-year highs in 2014, with oil and gas sector deals coming in at a rate not seen on records going back to the 1970s, Thomson Reuters data shows.
With the price of crude oil tumbling, deals in the oil and gas sector have hit $369 billion so far this year after Monday's $35 billion bid by Halliburton Co for Baker Hughes Inc .
That is nearly double the value seen during the same period last year and marks the highest year-to-date level for the sector since the records began.
"Merging and restructuring has become a matter of life or death," said Alexandre Le Drogoff, fund manager at Talence Gestion, in Paris. "Oil is now well below the break-even costs of a lot of projects. They need synergies to preserve their margins."
Overall, 494 merger & acquisition deals worth $1 billion or more have been announced so far in 2014, more than any year since 2007, the Thomson Reuters data showed - with more likely before the year is out.
"We've seen with the bid from Halliburton for Baker Hughes that consolidation can happen," said Manish Singh, director and head of investment services at Crossbridge Capital, who is looking for possible M&A targets in the battered oil sector.
With crude sinking to near four-year lows, oil majors have been forced to slash investment while oil services firms face a choice between consolidating or going bust.
On Thursday, French oil services firm CGG rejected a 1.47 billion euro ($1.82 billion) takeover bid from larger rival Technip.
That offer came a week after Dutch firm Boskalis took advantage of a sharp sell-off in shares of rival Fugro to buy a 15 percent stake, sparking speculation of a potential takeover bid there as well.
The prospect of further tie-ups among oil services firms has also prompted hedge fund short-sellers to cut their negative bets on these stocks, data from Markit shows.
News of the Technip takeover bid for CGG sent the latter's shares jumping as much as 27 percent, representing a paper loss of 29 million euros for short sellers, according to Reuters calculations.
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REUTERS - Brent crude futures LCOc1 were down 72 cents at $61.49 per barrel at 1020 GMT, having fallen by 1.5 percent on Tuesday, its largest one-day drop in a month. U.S. West Texas Intermediate (WTI) crude CLc1 was at $55.12 per barrel, down 58 cents.
BLOOMBERG - Prices dropped during the session as the International Energy Agency said the recent recovery in oil prices, coupled with milder-than-normal winter weather, is slowing demand growth. The worsening outlook for consumption dampened some of the enthusiasm that OPEC and its allies will extend supply curbs.
Global energy needs rise more slowly than in the past but still expand by 30% between today and 2040. This is the equivalent of adding another China and India to today’s global demand.
Product exports have grown significantly over the past several years and are expected to continue to grow as Russian refineries add capacity to produce more high-quality products.