Lower oil prices boost global M&A appetite: EY

OREANDA-NEWS. More than half of oil and gas companies are contemplating acquisitions in the next 12 months, with the focus mostly on deals of up to \$250mn rather than mega-mergers on the Shell-BG scale, according to UK consultancy EY.

The number of executives expecting their companies to "actively pursue acquisitions" — 56pc — has more than doubled since last October, EY said in its Global Capital Confidence Barometer survey. "Unlike in the past, wherein growth was the primary driver for deals, the current environment is more focused on identifying companies that have a more strategic fit or will help reduce costs," the consultancy said.

Global mergers and acquisitions (M&A) activity in the oil and gas sector was strong in 2014, but the first quarter of this year was "the quietest in recent memory", with the total reported deal value falling by more than 70pc compared with October-December, EY said.

"Uncertainty about where oil prices will land after their months-long slide has dramatically disrupted the global market for oil and gas M&A activity", said EY global oil and gas transaction leader Andy Brogan.

The survey was conducted in February and March when Brent crude price averaged below \$60/bl, some \$10/bl lower than now and \$40/bl below last year's average. The oil price fall has hit hard firms with weaker balance sheets, and has given more resilient companies a chance to expand through acquisitions at more attractive prices. "For the first time in five years, more than half our respondents are planning acquisitions in the next 12 months, as deal pipelines continue to expand," said EY global vice chair for transaction advisory services Pip McCrostie.

Of the surveyed companies that expect to pursue acquisitions more than 70pc are looking to make deals of up to \$250mn, with 24pc planning acquisitions of \$251mn-1bn and only 4pc looking at potential deals greater than \$1bn. Of the surveyed firms, 16pc are oil and gas companies with annual revenues in excess of \$5bn, about a third with revenues in the range of \$1bn-5bn and more than a half with revenues of less than \$1bn.

Companies are likely to invest the majority of acquisition capital in their immediate regions and in developed markets, according to the consultancy.

"With private equity firms having raised a lot of money and currently waiting on the sidelines, deal activity should pick in the coming quarters," Brogan said.

Shell's deal with BG announced last month fuelled speculations that more mega-mergers are on the cards. But BP and Total are among the companies that have ruled out big M&A deals any time soon. BP is interested in deepening "the existing asset positions that we have", and is "certainly not looking at corporate acquisitions at this point", chief financial officer Brian Gilvary said last week.

Exxon's vice president of investor relations Jeffrey Woodbury said the company keeps "very alert" to acquisition opportunities. "That may be bolt-on acquisitions, as I said in the past, that provide natural synergies to existing operations that we can capture incremental value from, or larger acquisitions that fundamentally will provide strategic value for us in the long term," he said.