A.T. Kearney expects M&A wave in Oil & Gas industry

04 February 2015 Consultancy.uk

In a recently released report by A.T. Kearney the consequences of a plummeted oil and gas price are considered in the area of mergers and acquisitions. The strategy & operations consultancy notes that particularly companies with strong balance sheets can snap up deals, but that all parties in the oil & gas sector may do well from the changing environment if they take a strategic approach.

In a recently released study by consulting firm A.T. Kearney, titled "Mergers and Acquisitions in Oil and Gas”, the mergers and acquisitions landscape in the oil and gas sector for 2015 is analysed. Since the collapse of the oil price over the past six months, falling from $115 a barrel in June last year to around $50 a barrel in January, a knock on effect is expected by the firm into the commodity price dependent sector. With the collapse comes pricing pressures, and according to the report, this will force companies to move – like they did in the late 90s* – into mergers and acquisitions to reposition and reshape themselves within the energy sector ecosystem.

Supply factors and economic woes push oil prices down

While mergers and acquisitions were already on the uptake in 2014 relative to 2013, the growth of such deals is only expected to accelerate in reaction to the falling oil prices. Richard Forrest, global lead partner for A.T. Kearney’s Energy Practice and co-author of the study, states: "Our analysis and discussions with industry executives revealed the likely onset of a new wave of mergers and acquisitions across the value chain in the next 6 to 12 months." The advisor adds that companies well situated and with healthy balance sheets have the upper hand in the coming struggle to find good deals, while smaller companies will face considerable difficulty surviving – warning however, that the window of opportunity is small and highly dependent on energy commodity prices.

Vance Scott, A.T. Kearney’s global oil & gas practice leader, adds: "We expect to see the largest M&A deal value as well as largest share of deals in the upstream segment where focus on improving performance on a $/BOE basis will dominate. E&P players will drive internal effectiveness measure and portfolio repositioning that will encompass entire company sales and mergers. Consolidation in midstream will continue to be driven by the 'MLP advantage' whereas oilfield service provider consolidation will be driven by business volume changes and cost reduction needs.”

The authors highlight it will be key for players in the industry to take a strategic approach to M&A. “The winners will be those firms that anticipate potential outcomes, choose how and when to act, and understand how these decisions will impact their positions and competitive dynamics,” says Forrest.

* In the 90s, the severe price drop between 1998 and 1999 (<$10 a barrel) ushered in a wave of mergers, creating the super majors of today: Exxon and Mobil in 1998; BP, Amoco, and ARCO in 1998 and 1999; Total, Petrofina, and Elf in 1999 and 2000; and then Chevron and Texaco in 2000.