For companies with an appetite for strategic business growth rather than divestment, buying assets from insolvent companies is a particular avenue of opportunity. For example, in the current market, there may be opportunities to purchase oil & gas assets from companies that have not been able to survive the prolonged low oil price. Corporate Partner, Philip Mace, provides his top 'legal tips' for purchasing assets from, in this example, an English administrator of a company.
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Global oil price volatility survey - M&A findings
Whether as part of a proactive strategy or due to financial necessity, an increase in M&A activity over the course of the coming year is likely. Understanding where this will be focussed will be key to helping businesses seize opportunities and also identify what shape business restructurings and asset disposals/acquisitions might take.
Oil & gas companies have made concerted efforts to cut costs in order to shore up profitability; eliminating thousands of jobs and deferring or cancelling billions of dollars' worth of projects. However, the wave of M&A activity, predicted by many industry experts, has yet to begin.
Earlier this year industry experts predicted that if oil prices were to remain below $35 a barrel, sellers could come under pressure to try and strike deals. The recent rebound in the oil price to around the $40 mark may well prove to be a factor for oil & gas companies to continue to bide their time.
The results of our recent survey show that majority of senior oil & gas executives (78%) are taking a cautious response to recent market changes, while just a fifth (22%) are prepared to adopt an aggressive or opportunistic stance.
Restructuring of businesses or assets is considered key for industry players in light of current conditions – almost a third (32%) of respondents highlighted this as the one strategy they would drive as a priority. Streamlining operations, focussing on core business and dealing with unprofitable areas look vital.
That said, market participants are set to pursue a multitude of other tactics, from focussing on smaller, less capital intensive projects, to entering new growth markets and generating a more efficient supply chain. Tellingly, investing in shale energy did not feature on our respondents’ radar at all – a sharp reminder of the change in unconventional hydrocarbons’ fortunes.
Given current market conditions, entry into new markets may be out of reach for many companies where budgets are tight and capex decisions are on hold. However, for a small minority of better-resourced, agile IOCs or NOCs, (as evidenced by 15% of our survey respondents) taking a pro-active approach to increasing penetration of growth markets now makes sense, to take advantage of cheaper assets or to fill gaps left by others as they retreat.