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2016-01-07 21:00:00

OIL PRICES: M&A DOWN

OIL PRICES: M&A DOWN

The overall merger and acquisition (M&A) deal count in the global upstream business plunged in 2015 as the weakness and volatility in crude oil prices made it difficult for buyers and sellers to achieve consensus on value and outlook, according to analysis by IHS Inc.

Despite the boost from Royal Dutch Shell PLC's agreement to take over BG Group PLC in April, total value for global upstream oil and gas M&A deals in 2015 declined 22% to $143 billion from $184 billion in 2014, when transaction value rose 30% year-over-year.

More than $60 billion in unsolicited corporate takeover bids during 2015 were rejected, causing deal value to drop to a 10-year low. Aside from the Shell-BG deal, there were no corporate takeovers exceeding $5 billion. Fewer than 10 asset deals valued at greater than $1 billion occurred, following more than 30 annually during each of the previous 2 years.

The 2015 deal count, which includes both asset deals and corporate deals, fell by 50% to its lowest level since 2001. Asset deals represented 80% of total deals, but the number of worldwide asset and corporate transactions fell steeply. The corporate deal count plunged to a 20-year low.

 

UPSTREAM M&A 2015

 

 

"Unstable oil prices caused outlook uncertainty in 2015, and this lack of stability—a key ingredient for buyers and sellers to reach consensus—caused fewer deals to be reached," explained Christopher Sheehan, director of energy M&A research at IHS and lead author of the IHS Energy Global Upstream M&A Review.

"There continues to be a wide disconnect between potential acquirers and sellers regarding valuations of the huge supply of assets on the market that vary in quality," he said. "At the same time, corporate takeover targets that suffered severe share-price declines are reluctant to sell at modest current premiums in a weak market."

Sheehan noted that the pressure to consolidate was reduced by the availability of traditional funding avenues for exploration and production firms. "However, we believe the likelihood for wider consolidation in the oil and gas industry will increase in 2016 as producers face further financial pain and will have more constrained financing options due to persistently weak oil prices," he said.

Asian NOCs' activity slows

Transactions outside North America dominated the top 10 largest global deals in 2015, after accounting for slightly fewer than half of the top 10 deals in 2014. The largest transactions featured globally diversified deal activity in Russia and Caspian, Asia-Pacific, Africa and Middle East, and Europe.

For the second consecutive year, Asian national oil companies (NOCs) reined in overseas acquisition spending, and their global market share for upstream oil and gas acquisitions in 2015 declined to the lowest level since 2007.

Chinese NOCs, continuing to undergo internal restructuring, spent less than $5 billion on acquisitions for the second straight year. Meanwhile, financial buyers, led by private equity firms, spent more than $25 billion investing in acquisitions, joint ventures, and funding private exploration and production companies.

IHS found that North America, excluding the weighting of the globally diversified Shell-BG deal, accounted for 60% of worldwide upstream deal value for the second consecutive year.

Canada's market share fell slightly to 11% from 13%, with only one deal exceeding $1 billion. Oil sands deal activity continued to be relatively dormant for the third straight year.

US deal value down 60%

Excluding Shell's agreement to purchase BG, the US represented half of global upstream oil and gas transaction value in 2015, similar to its share in 2014. The US accounted for slightly more than half the number of total worldwide deals, above its historical average. However, just three of the top 10 largest transactions in 2015 were in the US vs. five the prior year.

Total US transaction value declined 60% to $35 billion in 2015 from almost $90 billion in 2014. For the second consecutive year, four of the top five largest US deals targeted unconventional resources, led by Noble Energy Inc.'s $3.8 billion acquisition of Rosetta Resources Inc. However, US corporate transaction value fell by more than 55% and US asset deal value declined 70% to the lowest total since 2009.

Global spending on unconventional assets plunged to less than $30 billion in 2015 after topping more than $75 billion in 2014, causing its market share of total worldwide upstream deal value to decline to 20% in 2015 from 40%. North America continued to be the dominant target for transactions of unconventional resources, led by deals in the US.

"Our IHS analysis of upstream companies indicates that oil and gas producers with heavy debt burdens and hedges rolling off in 2016 will become increasingly vulnerable," Sheehan said. "They will either have to dispose of prized assets, face serious restructuring—including the potential for bankruptcy—or become takeover targets in 2016."

ogj.com

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More: 

2016: THE NEXT GLOBAL RECESSION 

2016: OIL RISKS & SPENDING 

HALLIBURTON & BAKER HUGHES PROBLEMS: $35 BLN 

TAKEOVERS $500 BLN 

3Q: OIL&GAS M&A

 

 

 

 

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