2016: M&A WILL UP
A desire to capitalise on distressed situations, grow international market share and acquire new technology will drive a surge in M&A activity in the global oilfield services sector during 2016, according to major new research from international law firm Pinsent Masons.
The survey of 200 senior executives across the oilfield services industry has revealed that 86% of respondents expect a surge of deal activity in the next 12 months amid unprecedented price volatility. 70 % said they were actively considering an acquisition within the next 12 months.
Seventy four per cent pinpointed expansion of overseas operations as the main driving force behind deal activity, with 70% expecting opportunism around distressed assets to drive deals and 60% eyeing technology-driven consolidation. Corporates operating in the offshore technology and equipment segments were seen as the most attractive targets.
Respondents revealed that Singapore, Mexico, Indonesia, China and Nigeria are the most attractive emerging markets with falling valuations and new strategic deal structures presenting lucrative investment opportunities against the backdrop of continued oil price volatility.
In more mature markets, two thirds (67%) of respondents said the UK would be likely to yield opportunity for buyers over the next three years.
Notwithstanding that, the report reveals optimism in the industry with an overwhelming 96% predicting UKCS recovery to 'peak' levels of profitability. Almost half (48 per cent) expect the UKCS to rebound within five years, while over a quarter 28 per cent predict recovery within three years, subject to a general improvement in oil price.
"The new landscape is very different from other downturns," Bob Ruddiman, head of energy at Pinsent Masons, says. "We are in a more complex world where supply and demand and significant geopolitical events conspire with unpredictable consequences. Despite that, it's encouraging to see a sense of long-termism in the sector as oilfield services companies seek to find opportunity amid the undoubted challenges."
David McEwing, a partner in the oil and gas team at Pinsent Masons, feels that much of the discourse around oil and gas deals has focused on the majors and how they will respond to a more volatile environment. "However it shouldn't be forgotten that the global oilfield services sector is on course to be worth USD144bn by 2020, and is a significant employer and wealth creator," he adds.
"What our research shows is an industry on the cusp of transformation. Corporates are clearly looking to build out their international propositions and invest in technology which will maximise efficient recovery. It's no surprise that the UK stands out in that regard given the industry's focus on innovation and deep sea exploration – not least when we're seeing more of those types of projects in Asia.
"That said, there's no complacency and boards are clearly focusing hard on their corporate strategies. Yes, there's challenge but for some that means a chance to challenge the status quo in a dynamic market."
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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.