Oil downturn tipped to fuel more M&A activity

The slide in oil prices and a desire to seize overseas market share will drive a “surge” in mergers and acquisitions this year, according to a new study.

Law firm Pinsent Masons said its survey of 200 senior executives from across the oilfield services industry revealed that 70 per cent were actively considering an acquisition within the next year.

Almost three-quarters, or 74 per cent, highlighted expansion of overseas operations as the main driving force behind deal activity, with 70 per cent expecting “opportunism” around distressed assets to drive deals, while 60 per cent were looking at technology-driven consolidation.

China, Indonesia, Mexico, Nigeria and Singapore were flagged as the most attractive emerging markets, with falling valuations offering potentially lucrative investment opportunities against the backdrop of continued oil price volatility.

Some 48 per cent of respondents said they expect profitability in the North Sea to rebound within five years, while 28 per cent predicted a recovery within three years, subject to a general improvement in the oil price, which recently fell below $30 a barrel. Pinsent Masons’ research found that 83 per cent of industry executives have based their five-year investment strategy on an oil price range of $60 to $80 in the face of a new “lower for longer” consensus across the oil and gas industry.

David McEwing, a partner in the oil and gas team at Pinsent Masons, said: “Much of the discourse around oil and gas deals has focused on the majors and how they will respond to a more volatile environment. However, it shouldn’t be forgotten that the global oilfield services sector is on course to be worth $144 billion (£101bn) by 2020, and is a significant employer and wealth creator.”

He added: “What our research shows is an industry on the cusp of transformation. Corporates are clearly looking to build out their international propositions and invest in technology which will maximise efficient recovery.

“That said, there’s no complacency and boards are clearly focusing hard on their corporate strategies. Yes there’s challenge but for some that means a chance to challenge the status quo in a dynamic market.”