A high level of caution among senior oil & gas executives is putting the brakes on oil & gas M&A activity, according to research by a global law firm.
Just one fifth of senior oil & gas executives taking an opportunistic approach to market changes, according to a survey by Clyde and Co, with restructuring entire businesses and asset portfolios the top priority for leadership.
The majority of senior oil & gas executives* (78%) are taking a cautious response to recent market changes. Just 22% are prepared to adopt an aggressive or opportunistic stance, Clyde & Co found.
Oil and gas firms have cut costs, reduced headcout and cancelled projects as the oil price slump has left the industry reeling. However, the wave of M&A activity, predicted by many industry experts, has yet to begin.
London-headquartered Clyde & Co says that, among other factors, the cautious approach being taken by such a high proportion of senior oil & gas executives may be delaying M&A activity in the energy sector.
Corporate partner Philip Mace, said: “The fact that four fifths of businesses are still taking a cautious approach to market changes could mean the so called ‘inevitable’ wave of M&A activity is not quite round the corner.
“Businesses are clearly still assessing their options in order to make a more calculated approach to M&A.”
Mace added: “There are still several obstacles blocking M&A activity; volatility in the oil price is the main one. When the price has shifted so significantly, and predictions about the future vary widely, it is often difficult for sellers and buyers to agree on suitable valuations.”
Clyde & Co’s research also reveals that appetite among senior oil & gas executives for strategic business growth or acquisition opportunities is currently greater than the motivation to divest assets – 45% compared to 31%.
Given current market conditions, entry into new markets may be out of reach for many companies where budgets are tight and CAPEX decisions are on hold, according to the law firm.
“For a small minority of better-resourced, more agile IOCs or NOCs, taking a pro-active approach to increasing penetration of growth markets now makes sense, to take advantage of cheaper assets or to fill gaps left by others as they retreat,” said Mace.
Earlier this year industry experts predicted that if oil prices were to remain below $35 a barrel, sellers could come under pressure to try and strike deals. The recent rebound in the oil price to around the $40 mark may well prove to be a factor for oil & gas companies to continue to bide their time.
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