There is a healthy outlook for oil and gas transactions in upstream and oil-field services, according to professional services firm Ernst & Young.
The firm said the last 12 months had been a challenge for many companies in the sector, but there had been substantial opportunities for those with strong balance sheets.
E&Y’s third annual global oil and gas transactions review reveals 837 oil and gas deals globally were announced in 2009 compared to 1,152 in 2008 – with upstream deals accounting for 72% of these.
The total value of oil and gas transactions was £122billion, a 10% increase compared to 2008 – perhaps surprising given the lower average commodity prices in 2009.
Mergers and acquisitions activity in the second half of 2009 was much stronger than the first half, with 485 deals compared to 352 – an increase of 38%.
The total value in the second half of 2009 was £67billion, compared with £55billion in the first half of the year, up 22%, reflecting improving capital market conditions and growing consensus on oil price outlook.
Andy Brogan, global oil and gas transaction advisory leader at E&Y, said: “The positive trends that we have seen in recent months are likely to continue into 2010 and the outlook for oil and gas transactions is healthy in upstream and oil-field services.
“In the downstream sub-sector, overcapacity in some regions is likely to drive a longer period of uncertainty and transactional challenges. But, as 2009 has demonstrated, one person’s challenge represents another’s opportunity.”
Alec Carstairs, oil and gas partner at E&Y in Scotland, said: “The evaporation of equity and difficulties in debt funding, as well as the impact of lower oil prices, down on average from $96.87 in 2008 to $61.54 in 2009, and cutbacks from operators were the chief causes for the slump in transaction levels.
“However, the buyers who were active in this phase have strong balance sheets and have taken advantage of others’ distress to complete opportunistic bolt-on deals.”
Mr Carstairs said the oil price had strengthened, equity capital was starting to flow back into the sector, development projects were coming back on-stream with increasing frequency and stronger exploration budgets were being set for 2010.
He added: “The increased oil price may have generated a scurry of equity investment, but funding constraints continue to impact many, be it equity or debt, and the success of proposed IPOs (initial public offerings) in 2010 will be carefully monitored.”
Mr Brogan said lessons had been learned on the risks of investing in single-asset exploration companies and E&Y anticipated companies successfully coming to market would have larger portfolios, probably spread from exploration into production.
“Commodity pricing volatility is likely in the short term as global demand is predicted to remain below supply capacity in 2010,” he said. “As economic recovery drives demand growth, greater pricing stability is expected in the medium term, although the precise timing and shape of recovery remains a subject of much speculation.”