Oil and gas companies hungry again for M&A deals: Ernst & Young survey

SINGAPORE - The appetite for mergers and acquisitions in the oil and gas industry is back, according to a survey by Ernst & Young (EY) released on Monday.

More than half (56 per cent) of global oil and gas executives surveyed said they were ready to make a deal in the next 12 months, with 60 per cent expecting to make at least two deals.

The survey also found that almost all (99 per cent) of respondents in the oil and gas industry expected the deal market to improve or remain stable over the next 12 months, with 97 per cent saying the same for the global economy.

Said Andy Brogan, EY's global leader, oil and gas transaction advisory services: "Transaction activity may have hit a five-year high in 2014, but the first quarter of 2015 was one of the quietest in recent years. The sudden and steep drop in oil price forced many companies, particularly those in upstream and oilfield services, to adopt an intense internal focus - aggressively cutting spending and costs.

"Transaction opportunities in the form of mergers and divestments have been delayed by uncertainty over oil price outlook. Now those acquisition opportunities, coupled with increased confidence in the global economy, are setting the stage for increased M&A activity."

EY polled 112 executives in oil and gas companies.

The survey also showed an interest in mid-sized transactions, with 74 per cent of oil and gas companies looking at deals of under US$250 million.

It also showed that stable valuations in the industry were enabling deal-making, with 85 per cent of oil and gas executives expecting the valuation gap between buyers and sellers to remain at "bridgeable levels".

Moreover, it highlighted the emphasis on cost reduction and efficiency, with 63 per cent of those polled saying they were dedicated to cutting costs and raising efficiency, while continuing to look for opportunistic acquisitions in the year ahead.

Mr Sanjeev Gupta, Asia-Pacific leader of oil and gas at EY, said mergers and acquisitions in Southeast Asia were expected to pick up in the coming quarters. He added that more activity from private equity and financial investors could also be expected, particularly in upstream and oilfield services.

But Mr Brogan pointed out that despite the increased optimism behind the appetite for deals, challenges remained.

Commodity price uncertainty and geopolitical volatility would continue to influence transaction decisions, he said, noting that companies that exercised capital discipline and maintained optionality would come out on top.