Oil & Gas M & A Barely Reaches $35 Billion In 1Q14
Rigzone is reporting:
The
recent absence of major Chinese involvement and eroding profitability
in the oil and gas industry has led to M&A reaching just $33.4
billion in Q1 2014, 28% lower than the average quarterly M&A spend
over the past three years. The lower M&A value is also mirrored in
the deal count of 205 deals during the quarter (excluding licensing
rounds) which is 27% lower than the average deal count by quarter since
2010. Two factors: China, profitability.
Since the start of 2010, state-influenced Chinese companies have been
responsible for $95 billion of company-to-company oil and gas deals at
an average spend of $5 billion per quarter. In Q1 2014, these companies
accounted for only $147 million of upstream deals. It is likely that
this relatively low amount of activity is more to do with a timing
issue, rather than a shift in strategy from China, especially with
Chinese companies rumoured to be interested in acquiring large stakes in
the LNG industries of Canada’s west coast and Cyprus during the
quarter.
The more significant factor in the relatively lower M&A total is
likely to be the continued drop in profits for the upstream industry as a
whole. At the time of publication, 200+ companies had reported their
2013 annual results. Using the Evaluate Energy database, it can be seen
that the 2013 normalised profits are 25% lower than in 2011 and 16% than
2012. The underlying reason behind the erosion of profits is the
escalation of operating and development costs in the oil and gas
industry, which haven’t been reflected in the oil and gas price
realisations. Therefore, profits and free cash flow have been squeezed
and companies have been more tentative with their capex budgets.
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