Duff & Phelps recently released their May 2015 Mergermarket Report entitled Energy: Turning Volatility Into Opportunity. In it, they address the elephant in the room – namely, the recent fluctuations in the oil and gas industry. Five executives from different industry sectors were interviewed about the effect of current economic conditions on their business. Although note was made of recent upheavals in the industry, the report concludes that this has opened up opportunities in the sector which keen players may be well positioned to take advantage of.
Some key findings:
- Despite market fluctuations, energy M&A has risen by 19% in 2014. Global energy M&A deal value was US $549.2 billion in 2014, higher than the previous 4 years (2010-1013). There were 169 energy M&A deals in Canada in 2014 worth US $46 billion, compared with 106 in 2013.
- Significant activity is ongoing in exploration and production (E&P) in Africa, Latin America and South America. The market may experience increased deal activity if companies increase their exploration for oil and gas again.
- For the oilfield services segment, the market will likely see both the acquisition of distressed assets as well as more strategic acquisitions by larger corporations.
- For the midstream segment, capital markets have remained open and there have not been major changes to the M&A environment. Operating scale and asset base growth are two factors which are particularly influencing deals in the midstream segment. More deals are expected in the second and third quarters of the year.
Despite the potential challenges facing the oil and gas sector in the current economic climate, the executives interviewed noted that valuable opportunities may be available in the coming year. With increased M&A activity in 2014, there remains a sense of optimism about oil and gas M&A as the year goes ahead.
The author would like to thank Dina Peat, articling student, for her assistance in preparing this legal update.