Despite the continued uncertainty and volatility in the global economy, the oil and gas industry has remained one of the most resilient sectors.
For most of 2011, the oil price was stable and above $100 a barrel and consequently the industry as a whole was able to benefit from increased activity.
This includes increased drilling programmes, strong forward order books and recruitment drives, evidenced throughout the value chain. These strengths are in stark contrast to many other sectors across the UK.
I look back at 2011 as a relatively encouraging yet still subdued year in terms of M&A activity.
There were a few sizeable private-equity backed transactions.
These deals, together with increasingly strong private equity sponsor interest and sufficient bank funding appetite, are positive signs that the M&A market had the potential to return to growth.
Yet the level of M&A activity still fell short of the optimistic expectations that many held at the start of 2011.
So what does that mean for activity levels for the year ahead?
We saw a number of larger, generalist private equity houses make regular visits to Aberdeen in 2011 to build their relationships in the area with management, local advisers and banks, allowing them to stay close to the market and identify an attractive oil and gas asset to add to their portfolio.
The increased level of interest in the market is a welcome and encouraging sign, illustrating that confidence in the oil and gas market is being recognised UK-wide, proving it an attractive market to invest in even in these tough times.
At RBS, we are continuing to see encouraging signs across the oil and gas portfolio.
In the main, our corporate clients are proving resilient during the downturn and we are also seeing the majority of our leveraged portfolio companies benefiting from strong balance sheets and surplus cash and performing in line with or ahead of budgets.
With this positive trend, it is easy to understand why there is again a growing level of interest in the sector from private equity which serves to increase competition in a market which has been predominantly led by corporate M&A activity in recent years.
Although the oil and gas industry will certainly not be immune to the ongoing economic volatility in 2012, its continued resilience and ability to adapt will stand it in good stead. Coupled with an increased appetite of companies for further growth into new markets, this points toward encouraging times for both corporate and private equity investment and increased M&A activity in 2012.
Cheryl Low is a director of structured finance for RBS in Aberdeen.
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