Daily Management Review

Oil industry Strives for Growth after a Period of Survival


08/26/2016




Oil industry Strives for Growth after a Period of Survival
After a significant hiatus, multibillion-dollar oil and gas deals are back on the table.
 
Wood Mackenzie Ltd. said that as crude’s recovery fueled hopes of a steadier market, more than $11 billion of transactions were announced globally in July. Noting a triple rise, the amount since May reached $32 billion and that’s the highest monthly total this year. According to the consulting firm, dealmaking will continue to accelerate as oil prices stabilize
 
After crude’s rebound from a 12-year low earlier this year bolstered confidence, Exxon Mobil Corp. and Statoil ASA were among the buyers. As the industry has slashed $1 trillion in spending to protect their balance sheets during the downturn, the acquisitions will allow the companies to ensure future growth.
 
“The extreme oil price volatility in the first quarter caused a lot of uncertainty. Activity picked up as confidence returned and companies started looking towards future growth instead of focusing entirely on survival,” said Greig Aitken, principal analyst for mergers and acquisitions at Wood Mackenzie.
 
To add discoveries in Papua New Guinea, Last month agreement to acquire natural-gas explorer InterOil Corp for as much as $3.6 billion was made by Exxon, the world’s largest oil producer by market value. People with knowledge of the talks said in July that negotiations to buy a stake in gas finds off Mozambique were in its advanced stages between Eni SpA and Exxon.
 
In its biggest acquisition since 2011, an oil block off Brazil from Petroleo Brasileiro SA for $2.5 billion was agreed to be purchased by Statoil, Norway’s biggest oil producer.
 
As buyers and sellers failed to agree on valuations amid oil’s decline, the deals follow a period of relative quiet. According to data compiled by Bloomberg, the fewest transactions last year since 2004 were seen in North America which is home to many higher-cost shale drillers. In the first quarter of 2016, benchmark Brent crude was the lowest in more than a decade and averaged $35.21 a barrel.The grade traded at $49.42 at 2:38 p.m. Singapore time.

“Buyers and sellers were so far apart in terms of price expectations. A lot of the sellers still were hopeful that $100 oil or at least $80 oil was around the corner, and it hasn’t happened,” said Bijan Mossavar-Rahmani, executive chairman of oil producer DNO ASA, which made a $300 million bid for Gulf Keystone Petroleum Ltd. in July.
 
There was little cash at hand with those companies that did make acquisitions. In April 2015, a rare mega-deal of the past two years and valued at more than $70 billion, Royal Dutch Shell Plc’s debt ballooned when it bought BG Group Plc. Some analysts and shareholders suggested that Shell was paying too much as the transaction was announced just weeks before crude prices resumed their slide.
 
As buyers and sellers have more similar price expectations, acquisitions could pick up and much anxiety may ease with Brent crude now trading around $50 a barrel.
 
Philipp Chladek, a senior industry analyst for BI in London said: “While crude has recovered, there seems to be an increasing consensus that oil will not go back to over $100 any time soon. So the differing perceptions about the asset values that, next to the volatility, was the main deal-breaker in the past, are gradually converging.”
 
(Source:www.bloomberg.com) 






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