As was expected, the Organization of Petroleum Exporting Countries (OPEC) announced on June 5 that it will maintain its crude oil production at 30 million barrels per day. This is the second time in six months that OPEC has decided to maintain it crude oil production. This decision was made in light of declining oil prices that many people are attributing to an oversupply of oil. The drop in oil prices puts pressure on producers that use higher cost production methods, including many US and Canadian based producers. Commenters have suggested that the decision by OPEC to maintain its production means that we will likely continue to see low oil prices and financial pressure on US and Canadian based producers.
A recent article from the March edition of the Lexpert Magazine titled “Oil Crash Dealmaking: The best time to pursue energy M&A may be now” highlighted how M&A activity can be used by producers to help manage uncertainty in a time of unstable oil prices. According to the article, in a number of the recent oil price slumps, large players in the industry have merged in an effort to consolidate their businesses. This provided cost savings, generated revenue synergies, eliminated key competitors and improved negotiating power. The article suggests that while the oil markets will eventually balance themselves out, in the meantime we should expect to see considerable M&A opportunities that may be capitalized upon.
This sentiment is echoed by many other commenters who have suggested that depressed oil prices afford greater opportunities for investment, including encouraging businesses that invest in distressed companies to become active in the oil sector.
OPEC’s announcement to maintain its oil production likely means continued depressed oil prices and possible instability within the sector, leading to an increase in M&A opportunities for companies that are well capitalized and willing to assume the risk.