Australian Market Ripe for Consolidation

“I don’t think in my 30 years looking at the oil and gas sector that I have seen so many companies on the ASX that have a market cap below A$20 million ($17.3 million). They are basically saying that cash is going to be wasted on drilling and recent history for exploration drilling has been disappointing - there’s some merit in that argument.”

Hedstrom believes these factors will trigger more M&A to survive whereas small companies are going to “get together”. He said the Neon and MEO combination was a perfect example of a deal that made sense in this market, with “one company having the cash, the other having assets”.

“It will ensure their survival for longer and they are clearly now looking at some acquisition opportunities, most likely production assets or near development. Those sort of opportunities will be coming at the market,” Hedstrom explained.

“I think we are going to see more opportunities at the junior end, in particular. That’s where I think most of the activity is going to be.”

Renewed Activity

With the time ripe for more M&A activity between oil and gas companies, there have been signs of growth on the Australian market during 2014.

Australia’s Roc Oil Ltd. was part of a takeover tussle for much of the year, which saw it accept a deal with Chinese company Fosun International Ltd. over a merger with another Australian company, Horizon Oil Ltd.

That deal, worth about $332.7 million (A$385 million), finally closed this month and saw Fosun gain oil assets in Australia, Malaysia and the North Sea.


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