Oil M&A Is Back as Industry Shifts From Survival to Growth

(Bloomberg) -- Multibillion-dollar oil and gas deals are back on the table.

More than $11 billion of transactions were announced globally in July as crude’s recovery fueled hopes of a steadier market, Wood Mackenzie Ltd. said. That’s the highest monthly total this year and brings the amount since May to $32 billion, triple that of the previous three months. Dealmaking will continue to accelerate as oil prices stabilize, according to the consulting firm.

Exxon Mobil Corp. and Statoil ASA were among the buyers after crude’s rebound from a 12-year low earlier this year bolstered confidence. Acquisitions will allow the companies to ensure future growth as the industry has slashed $1 trillion in spending to protect their balance sheets during the downturn.

“The extreme oil price volatility in the first quarter caused a lot of uncertainty,” said Greig Aitken, principal analyst for mergers and acquisitions at Wood Mackenzie. “Activity picked up as confidence returned and companies started looking towards future growth instead of focusing entirely on survival.”

Exxon, the world’s largest oil producer by market value, agreed last month to acquire natural-gas explorer InterOil Corp. for as much as $3.6 billion to add discoveries in Papua New Guinea. The company also is in advanced negotiations with Eni SpA to buy a stake in gas finds off Mozambique, people with knowledge of the talks said in July.

Statoil, Norway’s biggest oil producer, agreed last month to purchase an oil block off Brazil from Petroleo Brasileiro SA for $2.5 billion, its biggest acquisition since 2011.

The deals follow a period of relative quiet as buyers and sellers failed to agree on valuations amid oil’s decline. North America, home to many higher-cost shale drillers, saw the fewest transactions last year since 2004, according to data compiled by Bloomberg. Benchmark Brent crude averaged $35.21 a barrel in the first quarter of 2016, the lowest in more than a decade. The grade traded at $49.57 at 2:31 p.m. London time.

Buyers are taking a view there will be an oil and gas supply shortfall at the end of this decade and so are snapping up assets, analysts at Houston-based Tudor Pickering Holt & Co. wrote in a note Friday. Deals are also likely to increase because oil companies have fewer projects in hand.

“Buyers and sellers were so far apart in terms of price expectations,” said Bijan Mossavar-Rahmani, executive chairman of oil producer DNO ASA, which made a $300 million bid for Gulf Keystone Petroleum Ltd. in July. “A lot of the sellers still were hopeful that $100 oil or at least $80 oil was around the corner, and it hasn’t happened.”


Those companies that did make acquisitions had little cash to draw on. Royal Dutch Shell Plc’s debt ballooned when it bought BG Group Plc, a rare mega-deal of the past two years, valued at more than $70 billion in April 2015. The transaction was announced just weeks before crude prices resumed their slide, prompting some analysts and shareholders to suggest Shell was paying too much.

Such anxiety may ease with Brent crude now trading around $50 a barrel, and acquisitions could pick up as buyers and sellers have more similar price expectations, according to Bloomberg Intelligence.

While crude has recovered, “there seems to be an increasing consensus that oil will not go back to over $100 any time soon,” said  Philipp Chladek, a senior industry analyst for BI in London. “So the differing perceptions about the asset values that, next to the volatility, was the main deal-breaker in the past, are gradually converging.”

There’ll be plenty of assets up for grabs. Shell intends to raise $30 billion through divestitures in the three years to 2018, while BP Plc plans as much as $5 billion of disposals this year. Total SA and Eni also are putting assets on the block. 

The market for oilfield acquisitions has “stabilized in the last three months and the consensus around commodity prices and where prices are going has narrowed,” said Jon Clark, a transaction adviser at Ernst & Young LLP. “There seems to now be a shift back into M&A-type activity and we’re starting to see potential divestments coming out of the majors.”

With assistance from Mikael Holter. To contact the reporter on this story: Rakteem Katakey in London at rkatakey@bloomberg.net To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Alex Devine, John Deane.


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David Tkachuk  |  August 26, 2016
The title of this article, whether it be from Bloomberg or otherwise is a bit misleading. It suggests that the oil industry has shifted from a survival mode to one of growth on the weight of several acquisitions worth $11B. Perhaps Gregs quote from Wood Mackenzie was a little bit sensationalized? If you crunch the numbers a bit differently than mentioned in the article you get this: After a record-breaking 2015 which saw an unprecedented $4.28 trillion of global dealmaking activity, many predicted 2016 would be an equally strong year for M&A. However, at the halfway point this year, the opposite is true – year-over-year dealmaking activity is down as much as 32 percent. Thats just a bit different isnt it, when you put all of M&A into the mix across industries. Further to just the Oil & Gas side, Im extremely hesitant to call $11B a blockbuster type of number that is transforming the industry. Its healthy enough in this downturn but this is the culmination of all the deals spoken of in this article and quite frankly, its rather paltry and pales to what our industry generally considers large deals. Double digit $Bs in oil & gas A&D on a singular deal tend to give more credence to a major deal. Besides the Shell acquisition of BG, accurately mentioned by the author as rare, a more common type of large acquisition such as CNOOCs $15B acquisition of Nexen immediately comes to mind. Now those have substance and the ability to impact an industry in some way, shape or form. ExxonMobils $3.6 B of Interoil is pocket change for Rex et al and Statoils $2.5B acquisition of a Petrobras block is hardly headline news let alone an industry game changer from survival to growth. Ive been involved in those sizes of divestitures in the past and to be honest, didnt think it was that big of a deal on an industry perspective. Corporately yes, but industry no. I dont think they or a collective $11B in M&A to date this year has even a remote chance at turning the corner for one of this planets most influential industries.