Here’s why oil and gas bosses think more merger and acquisition activity is on the way
Link copied to
More deals are coming in oil and gas, and it’s leading to a fight between cashed up companies and deal-hungry private equity.
A survey by EY Global shows that energy executives are so confident they see “little or no downside” in their economic forecasts for both the sector and the global economy, and that’s leading them to take a second look at their assets.
Australia is already experiencing an uptick in energy sector mergers and acquisitions.
On Thursday, Sino Gas & Energy (ASX:SEH) said a US private equity firm was chasing it with a $528 million bid — and expected other suitors to emerge.
Private equity is becoming more active in oil and gas, and companies increasingly expect to be competing with them for deals, according to EY’s Global Capital Confidence Barometer report.
“68 per cent expect to continue going head-to-head with private equity, particularly for pre-development upstream assets, or later life mature assets,” the report said.
“However, private equity players are also exploring more innovative transaction structures, which should drive upstream mergers and acquisitions in 2018,”
Nine out of 10 executives expect the global mergers and aqcqusitions market to continue improving in the next 12 months, and nearly three-quarters expect deal pipelines and completions will increase in the months ahead.
Driving this is oil price stabilisation, continued growth in demand, and economic discipline by OPEC and non-OPEC members.
Headwinds included rising inflation and volatility causes by rising oil prices and costs, as services companies raise their prices, and geopolitical tensions.
“Policy is becoming harder to predict, and any increases in protectionism could have an impact on the efficient flow of goods and services among companies,” the report said.
EY says 60 per cent of the companies they spoke to have asset sales at the top of their agenda.
A third of companies say their shareholders have made it clear they want to see more sales.