Surge of oil and gas mergers and acquisitions expected

Mergers and acquisitions in the oil and gas sector are expected to step up this year as investors look to capitalise on distressed situations, experts say.

A recent survey by Pinsent Masons showed that an overwhelming majority of executives in the oilfield services industry “expect a surge of deal activity in the next 12 months amid unprecedented price volatility”.

“It is not necessarily financial distress or consolidation that is the main consideration for companies but the opportunity to expand into new areas,” said Jason Rosychuk, an oil and gas specialist at Pinsent Masons. “Technology is one of the key trends because it is becoming much more of a high-tech industry, so companies are looking to acquire key new technologies in areas like shale or enhanced oil recovery.”

The law firm said it expects the oilfield services sector to be worth US$144 billion by 2020.

Last month, Abu Dhabi-based Gulf Capital announced that its portfolio company, OCB Oilfield Services, acquired Singapore-based Kuiper International, which mostly deals in offshore construction and maintenance.

“We think the general atmosphere is conducive to acquire assets at reasonable prices,” said Richard Dallas, the managing director of Gulf Capital’s private equity division.

The company typically invests between US$150 million and $175m annually.

“Our typical deal size is $50m-$75m of equity investment and we hope to do two to three good size deals in a year,” said Mr Dallas. “And in a good environment for buying, even more than that.”

Tarek Mounib, the executive director of private equity at Gulf Capital, said the deal would help OCB to grow into an integrated operation. “The Kuiper deal presents an opportunity to operate in an adjacent sector – the construction side,” he said.

The acquisition will also allow OCB to further tap the Asia Pacific market, which is one of the strongest areas for growth in the current low oil price environ­ment.

“You still have offshore activity in the Middle East and even more so in Asia Pacific. It is a very opportunistic acquisition and they probably paid much less than they would have for the same transaction a year ago,” said Pierre-Louis Brenac, the managing partner and head of Middle East at the consultancy Sia Partners.

Mr Brenac said that this logic was exactly how many oilfield services expand, but many are lacking the cash flow to do so. “Gulf companies have the cash to do it while other well-known firms in other parts of the world, particularly North America and Europe, can’t afford this any more,” he said.

Gulf Capital said that it was always on the lookout for good opportunities but, as far as the oil and gas industry is concerned, it has to be more on the operational side to decrease risks.

“We’ll stay away from the most volatile parts of oil and gas such as the very top of upstream structure like seismic,” Mr Dallas said. He added that the company “may very well add” to its oil and gas portfolio “very judiciously and cautiously”.

“We don’t wait for the river to rise, we try to make our own luck,” Mr Dallas said.

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