Market uncertainty slowing upstream acquisitions

Jan. 22, 2019
Upstream deal making could be subdued this year, according to Wood Mackenzie.

Offshore staff

LONDON – Upstream deal making could be subdued this year, according to Wood Mackenzie.

The consultant points to a combination of continued volatility in oil prices and bear markets creating uncertainty, altering financial conditions are forcing companies to re-assess their near-term strategies.

It was a trend that developed during 4Q 2018, when the deal count dropped to its lowest level since 1Q 2015, the consultant claimed, with December the slowest month since January 2015.

Greig Aitken, director, M&A research, said: “If volatility cedes to stable but lower oil prices, history suggests we’ll see a relatively sluggish year – we tend to see more deals when confidence and investment are high.

“That said, in any environment there are always motivated sellers and opportunistic buyers, players looking to re-engineer portfolios…”

He expected the majors to continue their focus on long-life and low-cost growth assets, leading to more country exits and more exits from legacy assets.

Following the slide in the share price of E&P companies, some of which are well run but undervalued due to cyclical, external factors, there could be takeover opportunities.

However, the level of interest in the current climate may be low. Some national oil companies might make approaches, Aitken suggested, although there is no indication that the Chinese NOCs have further appetite for big deals.

Other Asian and Middle Eastern NOCs are more likely to mount bids, based in part on recent intentions.

Private equity, sovereign wealth funds and other investors are also well placed, he added. “Discounted market valuations are exactly the type of scenario in which these companies can generate value.”

01/22/2019