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Page added on January 8, 2016
Appetite for mergers in energy sector drying up
Despite some planned mega-mergers, market uncertainty meant few companies were willing to join forces in last year’s weakened energy economy, analysis finds.
An emailed report from consultant firm IHS found the value of merger and acquisitions in the oil and gas sector declined 22 percent last year to $143 billion. That’s despite the planned $85 billion merger outlined in 2015 by Royal Dutch Shell and BG Group.
“Unstable oil prices caused outlook uncertainty in 2015, and this lack of stability, a key ingredient for buyers and sellers to reach consensus, caused fewer deals to be reached,” Christopher Sheehan, director of merger and acquisition research at IHS, said in a statement.
Crude oil prices started falling below the $100 market in mid-2014. Brent, the global benchmark price for crude oil, closed trading Tuesday at $36.42 per barrel, off about 35 percent from the start of 2015. This market scenario translated to volatility making it difficult for potential buyers and sellers to reach a consensus on the way forward.
IHS found the number of energy sector deals last year was at its lowest level since 2001. Global spending, meanwhile, dipped below $30 billion last year after topping $75 million in 2014.
Sheehan said weakness should endure throughout the year as most analysts expect slow economic recovery will keep markets skewed heavily toward the supply side.
“We believe the likelihood for wider consolidation in the oil and gas industry will increase in 2016 as producers face further financial pain and will have more constrained financing options due to persistently weak oil prices,” he said.
Shell and BG shareholders consider the merger at the end of January.
4 Comments on "Appetite for mergers in energy sector drying up"
makati1 on Fri, 8th Jan 2016 8:32 pm
Merging shit with shit only winds up with a bigger pile. Not roses.
rockman on Sat, 9th Jan 2016 7:36 am
FYI: it’s not drying up. In fact it will soon be blazing. And acquisitions is a better term then mergers. Any trades currently stalling is due to repricing as oil and NG values continued to slide. And the new push will be led by many hedges that will roll off this year. Some companies continued to get $70-$85 per bbl thru December.
makati1 on Sat, 9th Jan 2016 8:20 am
I don’t see that happening. If anything, the high probability of the ME literally exploding this year will keep any sane money away. If there is any money available to spend there with the way the market is going now.
blood on the Market floor is not a good thing for investors, but it makes my day. The sooner it all goes down, the better for humanity as a whole.
Nony on Sat, 9th Jan 2016 12:16 pm
2015 seemed like a year of waiting for the shoe to drop. Not only have we had another year of pain, but more importantly, the strip is $10-20 lower (outlook for next couple years of oil) than it was in early 2015. That, more than even the prompt month drop, is going to finally create distress, to include liquidations and debt taking haircuts, in the US oil patch.
I think the other thing to factor in is just the drop in the value of assets and companies. Acuiring a company with a $50 stock may now be acquiring a $10 stock. Obviously commissions and the like will scale. But if you just want to see amounts of acreage and production changing hands, that is a different picture.
In addition, much of the transfers are still buying acreage, not buying companies.
Love to see an analysis of US acreage purchases/swaps for 2014 and 2015. Maybe there still were more transfers in 2014. (people buying hot assets.) But I don’t know without seeing the analysis.