Oil mergers set to resume as firms 'open up hatches'

IT IS time for the oil industry to "open up the hatches and emerge from the storm" by getting back on the merger and acquisition trail, according to a leading analyst.

Speaking to Scotland on Sunday in advance of RBC Capital Markets' industry conference in London this week, Al Stanton, an analyst with the firm, said that "people have battened down the hatches. Now is the time to open them up."

The title of RBC's annual oil and gas conference is What Now?… Who's Next? Stanton said: "We've come through quite a tough time in the sector, but now the oil price is up. We've learned some lessons and the outlook for next year is more positive."

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He said that Mike Wagstaff, who was chief executive of Scottish oil exploration company Venture Production until it was recently snapped up by Centrica, will be in a position to tell the audience at Claridge's on Thursday of the challenges faced by businesses wanting to replicate that model.

Stanton said the market will want to know how companies such as Dana Petroleum will be progressing their exploration and development activity. "Sterling Resources made a pretty rare discovery in the southern North Sea, but you can't really see that in their share price. It's quickly gone from 'Excellent result – well done' to 'Ouch, you're going to struggle to finance the field development'," he said.

Stanton is optimistic that banks will start lending more next year and this will lead to further mergers and acquisition (M&A) activity.

"M&A will be a big theme next year. Any distressed companies could be targets. There are also firms such as Tullow and Heritage which offer world-class opportunities."

He explained that the main issue this year has been funding, but with greater access to finance on the horizon, projects should progress and there are packages of assets for sale.

Unlike many in the oil industry, Stanton does not see a need for incentives to help exploration.

"The taxman shouldn't be following what is done in Norway where you get 78 cents back if you spend a dollar. Incentives to help development are one thing, but with exploration things have to stack up on their merit."

However, he is calling for the gas sector to be given a boost. Stanton said that investment is needed in both gas storage and production.

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With gas languishing at a low price, the upstream industry needs some assistance, he added.

Others taking part in the conference include Mike Watts, deputy chief executive and exploration director with Cairn Energy, and Peter Buchanan, chief executive of Valiant Petroleum.