Analyst: Foreign Investment in US Shale to Continue

Cassidy does not expect upstream merger and acquisition (M&A) activity to hit the record level of $700 million seen in 2012, but M&A activity this year is moving at an accelerated pace via the average of $300 million to $325 million, with activity in this year’s first quarter reaching $100 million. M&A activity has been mainly focused in the upstream sector, where operators have been swapping out assets where they feel they can’t make the most money.

To adjust to credit threshold limits, companies are selling off assets on the margin that don’t fit into their medium or long-term plans, and are placing more stringent limits on capital spending. Cassidy is seeing an all-around belt tightening in oil and gas. The “grow baby grow” mantra seen before is not out of vogue, Cassidy noted. While companies still want growth, capital efficiency also is now a focus.

Oil and gas companies also are separating their businesses into units for conventional and unconventional assets. The same executive leadership still oversees operations, but given the very difference competencies for conventional and unconventional, the business are separated out to enhance performance.

By splitting their businesses into conventional and unconventional, or spinning off businesses, companies appear to be trying to create a culture and mentality that can help them compete against their natural competitors. In the case of the majors, the competition is not other major oil companies, but small independent operators.

“The decision-making cycle time and response time, the supply chain and technical capabilities required are very different versus a deepwater project,” Cassidy explained.

The issue of onshore versus offshore is the complexity of the design and operations of offshore wells, which are primarily specialty wells, and onshore, which are standard wells. Each requires a tailored business model to be successful.

“If you mismatch the operating model to the type of well, then you can get suboptimal financial performance,” said Cassidy. “They are trying to physically separate the companies to ensure the right operating model gets applied to the correct situation for optimal operating and financial performance.”


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