During times of turbulence in the oil and gas market, it is normal to see a lot of mergers and acquisitions taking place. Usually smaller, more vulnerable companies are susceptible to being acquired by larger corporations, which have usually survived through such crises before. However, 2015 proved to be a slower year for M&A deals than 2014.
In 2014, 592 mergers and acquisitions took place, coming in at a value of about $359 billion. In 2015, however, these figures had dropped 19% (477 deals occurred figuring in at $290 billion). It was expected that with the continuing low oil price, many more deals would occur in 2015 than had been struck in 2014. The figures clearly show that this was not the case. Of course, most of this action was within the upstream sector, with 67% of the deals occurring in that portion of the O&G business.
Furthermore, a good portion of the 2015 global M&A was concentrated in the US and Canada, with 48% of deals occurring in the US and 20% of the deals happening within Canada.
Many smaller companies are in over their heads when it comes to the massive investments required to operate in the O&G market, particularly in the upstream sector.
The head of M&A at Panmure Gordon, Karri Vuori, states that “The juniors can’t support their asset bases anymore, their balance sheets aren’t looking very strong,” CNBC reports. Many, including Vuori, believe that 2016 will be a huge year for M&A deals in the oil and gas market. Given the current price level and dismal forecasts for later on in the year, 2016 could quite possibly see a large increase in oil and gas M&A deals.
Article written by HEI contributor Timothy McNally.