M & A Revival | Russell T. Rudy Energy LLC
When crude oil prices first cratered, many industry observers predicted a flurry of merger and acquisition (M&A) activity as the industry consolidated. A recent article in “Rigzone” contends that this was because potential sellers thought that low prices were a temporary phenomenon and the offers that buyers were tendering were unrealistically low. Now that there is an emerging consensus that prices will probably be “lower for longer”, we are starting to see a resurgence in M&A activity.
Even the rare mega-merger, such as Shell’s purchase of British Gas (BG) in 2015 drew criticism. Shell had to borrow heavily to finance that $70 billion deal. Then prices dropped even further, down into the high $20 range temporarily, and the skeptics were out in full force. Now that prices seem to be establishing a trading range in the $40’s, the Shell deal is beginning to look reasonable.
The industry, as a whole, slashed over $1 trillion in spending in order to maintain liquidity and survive. Now that there appears to be relative price stability, some companies see M&A as a way to grow. Consulting group Wood Mackenzie reports more than $11 billion in transactions in June. Last month ExxonMobil announced the purchase of InterOil Corp. for $3.6 billion in an effort to expand its position in a liquefied natural gas (LNG) project in Papua New Guinea. Exxon is also negotiating with Eni SpA to buy into another LNG play in Mozambique.
Norwegian operator, Statoil, agreed to buy an offshore block in Brazil from Petroleo Brasileiro SA for $2.5 billion. Shell is raising $30 billion in asset sales in order to build an acquisition war chest, and BP is in the process of raising $5 billion for the same purpose. Total SA and Eni are following suit.
North American M&A seems to be lagging, but many observers feel that it is just a matter of time until domestic operators get into the act. Jon Clark with Ernst & Young observed that the market for oilfield acquisitions has “stabilized in the last three months and the consensus around commodity prices and where prices are going has narrowed. There seems to now be a shift back into M&A-type activity and we’re starting to see potential divestments coming out of the majors.”
After all, one company’s divestiture is another’s acquisition.
To read the article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/146354/Oil_MA_Is_Back_As_Industry_Focus_Shifts_From_Survival_To_Growth?utm_source=DailyNewsletter&utm .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
