Deal making in the oil and gas sector is set to accelerate as higher oil prices and an improved outlook for the sector boost investor appetite, a broker has predicted.
Royal Dutch Shell’s £46billion bid for smaller rival BG Group last month highlighted the shift in sentiment in the sector after mergers and acquisitions (M&A) slumped in the first quarter of 2015 to a 20-year low, a report by Morgan Stanley revealed.
The research found that there were only 30 deals completed at a value of £2.6billion in the quarter, most of them in North America.
Since the start of the second quarter, 38 deals have completed with a total value of £60billion, the bank said.
A 40% recovery in oil prices since hitting in January their lowest point in the current cycle and increased cost cutting measures by oil producers have been the main drivers of the recent uptick in deal making.
“There is now meaningful momentum behind current cost and capex (capital expenditure) savings programs in the industry,” Morgan Stanley said.
“With oil price risks skewed to the upside we see a ‘sweet spot’ of rising prices and falling costs leading to a free cashflow recovery for potential exploration and production (E&P) acquirers and accelerating M&A activity.”
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