Oil and Gas Portfolios Get Closer Look

Disruptive forces such as geopolitical uncertainty and the energy transition are forcing oil and gas executives to intensify their portfolio reviews, EY reported Wednesday.

Fifty-nine percent of execs surveyed by EY for its most recent Oil and Gas Global Capital Conference Barometer (CCB) indicated that they are reviewing portfolios at least every six months. That’s an increase from the 48 percent figure in the previous CCB that EY released in May of this year. In a written statement emailed to Rigzone, EY also pointed out that nearly half – 44 percent – of oil and gas CCB respondents see regulation and policy uncertainty as the biggest potential threat to dealmaking.

The latest CCB also found that 99 percent of survey participants believe that global economic growth is stable or improving. Moreover, it observed that more oil and gas leaders – 80 percent compared to 64 percent six months ago – anticipate that the global mergers and acquisitions (M&A) market will improve over the next year.

“Global oil and gas sector confidence in market fundamentals, earnings outlooks, availability of credit and equity values remains strong,” noted Andy Brogan, EY’s global oil and gas transactions leader. “Leaders are responding proactively to uncertainty around the energy transition, geopolitical issues and the oil price outlook by taking steps to plan for multiple future scenarios. Indeed, 58 percent of sector respondents … say they are stress testing strategies and financial resilience, and many businesses are taking the opportunity to identify assets to sell that are either underperforming or at risk of disruption.”

The most recent CCB also concludes that:

• 55 percent of global oil and gas respondents anticipate actively pursuing deals in the coming year – 9 percent higher than the global average above all sectors
• portfolio optimization is a key driver for increased M&A in the year ahead
• 76 percent of respondents expect more competition for assets from private equity buyers
• The valuation gap, government intervention and policy concerns continue to thwart M&A aspirations, with 95 percent of executives reporting that they have failed to complete or canceled a planned acquisition in the past year
• The leading oil and gas investment destination is the United States, and North American Shale should continue to receive focused investment and drive M&A activity
• Better prospects for developing liquefied natural gas projects in Canada pushed that country into second place in terms of oil and gas investment destinations. The remaining countries in the top five destinations include the United Kingdom, Norway and the United Arab Emirates.

“Looking ahead, we expect to see more activity from private equity and rising cross-sector M&A driven by technology and digital,” said Brogan. “Businesses are also finding cross-sector companies attractive as they boost investments in renewables, battery technology and mobile. But changing regulations and trade uncertainty mean that the sector will mainly be looking closer to home for deals. While recent price volatility may lead companies to reassess their medium-term outlook, it is encouraging that this starts from a position of confidence.”

EY stated that its biannual CCB features insights from more than 2,600 senior executives from large companies worldwide and across industry sectors. The most recent survey’s oil and gas industry findings are based on responses from 105 oil and gas executives from 45 countries.