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Oil M&A Deals Set To Rise

Oil

Mergers and acquisitions in the oil and gas industry are on the rise, and the trend will intensify over the next 12 months, the latest Mergers and Acquisitions in Oil and Gas report from A.T. Kearney has found, as price uncertainty diminishes and new investment areas draw the industry’s attention.

More than 66 percent of the industry executives A.T. Kearney surveyed said they expected at least 10 percent more M&A deals over the next 12 months as a transition from fossil fuels to renewable energy, a change in oil and gas demand expectations, and digitization all prod oil and gas companies to change their decades-long agenda. Some 12 percent said they expected an increase of over 20 percent in mergers and acquisitions in the industry.

The buyers camp is, as expected, made up of Big Oil, the oilfield service giants, and private equity firms. Private equity, according to the management consultants, will be the leader of the pack thanks to abundant capital.

Big Oil and oilfield service providers are returning to growth mode thanks to more stable prices and a lot of small independents that may need to sell assets to pay down debt. For Big Oil, the acquisition drive is also part of efforts to replenish their reserve base, which suffered a slump in investment over the last two years and a resultant slump in new reserve additions.

Related: Oil Giants At Odds As Saudi, Russian Ties Improve

In fact, the survey found, reserve base replenishment is the top driver for the increased M&A activity on the buyer side. The other drivers include securing new capabilities, such as digital tech, and the new kid on the block, building a renewable energy portfolio. Over the longer term, A.T. Kearney analysts noted, building alternative energy footprints is likely to become a fundamental factor for mergers and acquisitions in the industry.

For those who are looking to sell, the top driver is securing capital for new projects, followed by balance-sheet improvement and boosting the economies of scale. This suggests that the times of despair when selling assets was a means of survival are now gone for the bigger players in the oil and gas field, and they are once again looking to expand, further consolidating an industry that, chiefly in the U.S., saw massive fragmentation with the shale revolution.

By Irina Slav for Oilprice.com

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