M&A activity in oilfield services industry expected to increase

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Published: 29th October 2012
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New research from Ernst & Young has found that most respondents in the oilfield services industry expect an increase in M&A and, significantly, none expect a decrease.

Encouragingly, almost three-quarters of those surveyed, including CEOs and private equity practitioners, plan to make acquisitions over the next one or two years. North America is expected to see the biggest rise in activity, followed by Asia-Pacific, Western Europe, Eastern Europe and Africa .

This would continue the positive trend that the sector has seen recently, with 96 deals being brokered so far this year.

Separate analysis from Barclays has confirmed that conditions are currently good for larger oil firms to snap up smaller companies and assets. EnerVest executive Phil DeLozier said oil and gas property sales could reach $60 billion this year. He is positive about the market, commenting at a recent expo in Houston, “We’re probably going to see our busiest year this year. Not a day goes by when you don’t get a call from someone looking to sell assets.”

Barclays analysts say that big players such as Halliburton, Schlumberger and National Oilwell Varco, “have substantial capacity to add leverage, particularly considering the improving market outlook.”

However, other large oil equipment makers could also get in on the action, the experts say, writing, “New regulations encouraging high-specification equipment, operator demand for high-caliber technologies and equipment capable of increasing efficiencies and reducing unplanned downtime, and the ongoing build-out in offshore markets all bodes well for continued growth in the capital equipment space, in our opinion.”

There are multiple factors driving demand for M&As, with the opportunity for businesses to expand reach and services being one of the most important. Of those surveyed by Ernst & Young, 88 per cent said that access to new markets and customers would be the primary draw of acquisitions, whilst vertical integration to offer new services and access better technology came a close second.

Businesses in the oilfield services industries reported facing a number of challenges in their sector at the moment. Just over half said regulatory changes were an obstacle to implementing a business strategy, with economic uncertainty and the price of commodities being cited as the second greatest challenge. One in five respondents said that political upheaval in major oil regions represents a significant threat and the same number said “resource nationalism” was a primary concern.

One potential issue for oil and gas companies is financing. The economic climate has created a high level of risk in the sector so some companies may find it difficult to access the finance they need for M&A deals. However, most remain positive about the outlook, with over half saying that they are confident they will have better access to equity over the coming two years.

Andy Brogan, Global Transactions Advisory Services Leader for Oil & Gas said, “The energy sector faces multiple pressures requiring companies to remain nimble and proactive in anticipating and adapting to the changing environment.”

He added, “The ability to integrate will be vital to success in the emerging markets while balancing the ability to deliver cost synergies in the developing markets. Through M&A and joint ventures, OFS companies can minimize risk and maximize earning potential.”
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