MERGERS and acquisitions (M&A) activity is escalating among junior oil and gas companies as they attempt to diversify exploration risk and secure cash flows, according to EY’s latest quarterly report on the sector.
Barry Fraser, executive director at the accountancy firm’s Aberdeen practice, said: “Deal making is back on the agenda, with funding for development opportunities at the heart of acquisition and farm-out activity.”
One example, according to EY, is the proposed acquisition of Mediterranean Oil and Gas by fellow Aim-quoted company Rockhopper Exploration.
EY also highlights the consolidation occurring among companies in the UK’s fledgling shale gas industry.
Fraser said: “We believe that the development of shale gas in the UK could create a £33 billion investment opportunity for British businesses, so it’s all to play for.”
EY’s report, published today, comes alongside a warning that beyond the oil sector dealmaking has been scarce.
Accountant BDO said a booming market in flotations and a lack of sellers have played their part in UK private company M&A activity having its worst quarter since 2007.
Neil McGill, director at BDO, said the private company M&A market stalled despite the increasing willingness of private equity firms to pay a premium for good quality businesses.
“The issue is lack of supply and it remains to be seen whether sellers will be tempted into the market ahead of the looming general election to avoid the future tax uncertainties that this generates,” he said.