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Oil and Gas Acquisitions Expected to Increase, Says E&Y

Saudi Plant

Ernst & Young LLP (E&Y) has forecast that the number of oil and gas acquisitions will more than likely increase in the upcoming months amid an expected stabilization of energy prices and stronger confidence over solid deals being made.

In the opinion of Andy Brogan, global oil and gas transaction leader at E&Y, approximately 2,000 energy assets are available with buyers and sellers earning more confidence over “coalescing” price expectations. As a result, he feels the pace of acquisitions will pick up in the fourth quarter of 2016 with most deals expected to be announced next year.

Oil and gas deals in North America so far this year have marked an increase over the same period of 2015, according to data analyzed by Bloomberg. Last year as a whole marked the lowest level since 2004.

“Everybody has now sort of reset to a new forward curve,” Brogan told Bloomberg in an interview published on Monday in World Oil.

“The way the market was moving destroyed people’s confidence that they understood how the market works. People can now have a conversation about what an asset is worth with both sides being comfortable that they’re not going to be made fools of by doing the deal.”

In his view, some 80 percent of the assets announced for sale are upstream projects, and price expectations for as long as a fifteen-year period may help buyers assess the value of an asset with a span of twenty to thirty years.

Related: Statoil Posts $300M Loss In Q2, Blames Wavering Upstream Revenue

“We have seen a number of processes initiated in the last month or so that indicates that firstly, there is renewed confidence among sellers, they can actually start a process and actually get to a conclusion,” Brogan added. “Secondly, we are also seeing a renewed interest on the buyers front.”

According to FinancialBuzz.com, the price of a barrel of oil in the second quarter of this year moved in a range of around US$45 to US$50. This is roughly double than the US$25-US$30 seen earlier this year including a twelve-year low seen last February.

Furthermore, data provided by the Oil & Gas Financial Journal noted how second quarter upstream deals rose by 38 percent compared to the first quarter and were worth a combined US$25.6 billion.

Despite Brogan’s confidence over increased acquisitions, crude futures have dipped in the past seven weeks as the U.S. benchmark, West Texas Intermediate, fell in value by at least 11 percent so far this month. The price could continue to tumble, reaching as low as US$35 per barrel later this year based on the view of analysts with Morgan Stanley. The lower price of the commodities could certainly put a damper on the potential increase in oil and gas acquisitions.

By Erwin Cifuentes for Oilprice.com

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