An upsurge in investment in the North Sea by independent operators is set to boost service companies and could kick start a new round of mergers and acquisitions, according to Ernst & Young. Without investment in leadership today, these transactions will have less chance to succeed.
Speaking at Offshore Europe on September 3, 2003, Alec Carstairs, Head of Corporate Finance at Ernst & Young, said that expenditure is likely to grow by around 20% in 2004/2005 as independents like Apache, Encana, Paladin an Perenco attempt to optimize production from their new assets in the North Sea.
Alec Carstairs said, "Prospects for service companies are very positive and for those who are prepared to show leadership, M&A is a means by which they can accelerate their growth. However, without strong leadership, the chance of success is low.
"The last big year for mergers and acquisitions in the oil and gas industry was 1998 when globally there were 633 deals worth over $231 billion completed.
"The consolidation in the exploration and production sector at that time was triggered by a low oil price, and it transformed E&P and consequently the oil services community.
"The stimulus this time is quite different. The landscape of the industry is changing as the majors steadily divest themselves of some of their assets in the North Sea, giving independent operators the opportunity to look at new ways of working.
"For service companies, this presents very significant opportunities and a positive climate for M&A, which is established as a means to drive growth in excess of that which is likely to be achieved organically."
But Carstairs warned that mergers require strong, brave leadership, with management key in any transaction.
"Recent deals involving oil and gas companies in the North Sea have all been people driven with strong leadership shown and a determination to use the M&A route to make advances in the industry.
"The MBOs at RGIT Montrose and Wellstream fall into this category as does the recent secondary buy-out and listing of Sondex, the merger of CRP and Balmoral and the acquisition of Consort by Caledonia Oil and Gas.
"These transactions are pathfinders for what could come in the next two years. This industry has always attracted leaders of the highest caliber and there is no doubt that it retains a pioneering spirit.
"The key for oil and gas companies as we enter this phase in the North Sea now is to recognize that leadership is key for mergers and acquisitions, which can be the basis of substantial growth."
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