Here's why oilfield companies don't bow out on M&A plans
Almost 7 in 10 will make acquisitions in the next 12 months.
According to Ernst & Young Dynamic Dealmaking in Oilfield Services, a vast majority of the survey respondents (84%) are expecting an increase in M&A and none expecting a decrease.
Here's more from Ernst & Young:
Nearly three-quarters of the 50 respondents comprising industry executives and private equity practitioners in the oilfield services sector, plan to make acquisitions in the next 12 to 24 months. Companies based in North America (80%) are expected to lead in activity, followed by Asia-Pacific (52%), Western Europe (26%), Eastern Europe (14%) and Africa (12%).
Multiple drivers explain the increase in appetite for M&A. Access to new markets and customers (88%) was cited as the primary driver of acquisitions, while vertical integration to extend services and access to new technology (78%) followed closely. Oilfield Services (OFS) companies will also look for opportunities to broaden and expand their service offerings.
Fifty-four percent of respondents cited changes in regulatory framework as the biggest challenge to executing their business strategy, with the second greatest challenge (50%) identified as economic and commodity price uncertainty. One-fifth of respondents said political upheaval in major oil provinces presents the biggest macroeconomic threat, while an additional 20% singled out the possibility of resource nationalism as the primary challenge.
Andy Brogan, Global Transactions Advisory Services Leader for Oil & Gas at Ernst & Young says: “The energy sector faces multiple pressures requiring companies to remain nimble and proactive in anticipating and adapting to the changing environment. 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.”
Sanjeev Gupta, Asia-Pacific Oil & Gas Leader at Ernst & Young adds: “The rising domestic demand in emerging Asia is pushing major national oil companies to ramp up their activity around the globe. On the OFS sector, industry players in China, India and the broader region are gaining prominence due to highly cost-efficient manufacturing, which makes for strong market sentiments over the coming period.”
The uncertain business environment has created considerable risk within the OFS sector, causing possible obstacles to companies’ financing. Despite the short-term difficulties, just over half of the respondents expect OFS companies to have greater access to equity over the next one to two years.