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Oil & Gas M&A Outlook Remains Positive despite a Decline in 2013

Date: 03/03/2014
Source: EY
  •  M&A activity down by 21% in value to USD 337bn and by 23% in volume to just under 1,400 deals as larger transactions and downstream activity decline
  • Uncertainty over future oil and gas price trajectories lead to deferred deals
  •  Projections of flat or declining oil price and cost escalation indicate a challengint 2014

Oil and gas M&A activity was significantly lower in 2013 in value and volume according to EY’s Global oil and gas transactions review.

The EY study highlights there was a 21% decline in M&A value to USD 337bn in 2013, significantly lower than the record high of USD 423bn in 2012. The total number of oil and gas transactions, was also down sharply in 2013 - dropping from just over 1,800 transactions in 2012 to just under 1,400 transactions in 2013 - a decline of 23%.
In 2013, there was a reduced willingness to commit to larger transactions. In 2012, 98 oil and gas transactions exceeded USD 1bn in value, compared with just 70 in 2013.
If in 2012 there were four “megadeals” with reported values over USD 10bn, in 2013, there were only three such deals. In 2012, the combined value of all deals larger than USD 1bn topped USD 309bn, while in 2013, deals USD 1bn or greater totaled only USD 241bn.
“The oil and gas sector remains one of the most resilient sectors globally, with an average of four M&A deals per day. It has coped reasonably well with an uncertain economic environment for much of the year but has also been impacted by industry specific supply side issues.
In Romania, the transactions remained low in 2013, in line with the M&A activity in recent years, despite the market potential. Oil and gas market followed the same trend, generally registering few and small value transactions. In the upstream sector there were some transactions generated by alliances in exploring fields or transfers of exploration licenses, while in the downstream sector there were acquisitions of small gas station chains or isolated gas stations by some players interested in increasing their market share in Romania." says Alexandru Lupea, Assurance Partner, EY Romania.


Upstream activity

Normal M&A drivers of portfolio and capital optimization helped upstream remain the most active segment, with USD 237bn in announced transaction value from 1,009 deals in 2013, accounting for about 70% of the global totals of both value and number of deals.

Downstream activity
Transaction values and deal volumes in the downstream segment were down sharply in 2013, with reported deal values totaling only about USD 14bn and only 109 deals. In comparison, segment values totaled USD 47bn in 2012, with almost 200 deals.
Ownership change in retail and refining in mature markets continued, stemming from ongoing portfolio rebalance and capital allocation reviews. Growing oil demand and refining capacity, particularly in Asian markets, supported a brighter picture for other markets, albeit with relatively low transaction levels.

Midstream activity

In contrast to the other segments, activity strengthened in the midstream segment in 2013, with reported deal values rising to more than USD 70bn (compared with USD 60bn in 2012, but well below the USD 88bn seen in 2011), although the number of deals declined from 104 in 2012 to 90 in 2013.

Oilfield services

After a strong year in 2012, activity in the oilfield services segment struggled in 2013, with reported deal values declining by almost 50% to about USD 15b, and the number of deals falling by almost 25% to 185. While activity relating to onshore and unconventional suppliers remained muted, driven by the tough operating environment in those parts of the industry, service companies supplying the offshore sector remained in demand.
Access to new technologies, particularly around deepwater applications, has enabled expansion into hard-to-access growth markets, and has fueled trade player activity. Additionally, financial investors demonstrated a continuing appetite for the oilfield services segment, playing a role in several of the segment’s largest deals.

Outlook for 2014
2013 has seen the international oil companies in particular come under increasing pressure from their equity investors to deliver. With the cost of the mega projects in which the international oil companies specialize under severe upwards pressure this will continue to drive portfolio optimization as they focus their portfolios more ruthlessly than ever before on the areas where they can demonstrate competitive advantage. For some, this may mean aggressive divestment campaigns, for others more innovative financial structuring solutions.

One of the interesting features of 2013 is that outbound national oil companies investment has continued. While some particularly active outbound investors have been less active as they digest their previous acquisitions, others have come to prominence. The overall rise in prominence of national oil companies and the continued growth of national oil companies
partnerships and relationships will continue to drive the shape of the industry.


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About EY Romania
EY is one of the world's leading professional services firms with approximately 175,000 employees in 728 offices across 150 countries, and revenues of approximately $25.8 billion in 2013. Our network is the most integrated at global level and its vast resources allow us to help our clients benefit from every opportunity. In Romania, EY has been a leader on the professional services market since its set up in 1992. Our over 450 employees in Romania and Moldova provide seamless assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. From 1 July 2013, Ernst & Young becomes EY, the logo has been modified in response to this change and the company's new tagline becomes "Building a better working world". The new visual identity reflects the new strategy of EY, Vision 2020. For more information, please visit www.ey.com.

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