Upstream oil & gas merger and acquisition (M & A) total transaction value in Europe slumped to just $171million in the first quarter of 2008 after more than doubling to $5.5billion in 2007, according to US analysts John S Herold.
Access to capital is blamed for the deals crash. While JSH doesn’t say it, the root of the problem is the sub-prime mortgage debacle in the US, plus the Northern Rock (UK) and Societe Generale (France) scandals.
Total worldwide transaction value in the first quarter of 2008 was $17.2billion, down 45% from Q4 2007 and 37% from Q1 2007.
“Acquisitions for cash or stock by smaller E&P companies virtually came to a halt in the first quarter of 2008,” said Robert Gillon, Herold senior VP and co-director of equity research.
“In 2007, smaller E&Ps were net buyers as worldwide acquisition spending exceeded divestiture proceeds by $5.4billion.
“In the first quarter of 2008, total transaction value involving smaller E&Ps was less than $100million.”
Speaking in London mid-April, Gillon said: “Access to capital is one reason why these companies, many of which are listed on London’s AIM board, have been unable to continue to acquire assets.
“Another is declining share prices. Herold has reported that the total shareholder return for smaller E&Ps outside North America fell 11.3% in the first quarter of 2008.
“Large E&Ps, which have much stronger balance sheets, have demonstrated the opposite pattern.
“They were net sellers in the amount of $3.2billion in 2007, but were net buyers with a balance of $1.6billion in the first quarter of 2008.”
JSH says, however, that the lack of money has not stopped smaller E&Ps from making deals to expand or develop their portfolios. The number of farm-ins, asset swaps and joint ventures reached nearly 100 in Europe in 2007, and that pace has continued in 2008.
Looking ahead, the US analysts suggest that corporate consolidation, after falling off in 2007, may potentially rise in all global regions, “especially if oil prices weaken”.
“Companies that find it hard to secure the appropriate level of financing may be targets of increasingly aggressive national oil companies and sovereign wealth funds, as well as larger E&Ps and the major integrated oils.
“NOCs and sovereign wealth funds accounted for 30% of global M&A transaction value in 2007.”