Oil rout may trigger takeover wave in energy sector
2014-12-19 06:58:56.318 GMT
By Perry Williams
Dec. 19 (Sydney Morning Herald) -- Collapsing oil
prices below $US60 a barrel may trigger largescale
corporate consolidation not seen since the late 1990s as
international oil companies scramble to generate enough cash to
cover their spending commitments.
Energy consultancy Wood Mackenzie has warned that if Brent
oil remains at its current levels of just $US60 a barrel, major
energy companies will have to cut spending by 37 per cent or
$US170 billion ($208 billion) relative to 2014 just to maintain
current debt levels.
"Weak oil prices through 2015 will ratchet up the
pressure on the most financially stretched in the sector,"
said Woodmac's principal M&A analyst Luke Parker.
"[We] expect to see falling deal valuations and the
emergence of a true buyers' market. Large-scale corporate
consolidation may be closer than it has been at any point since
the late 1990s."
The two biggest deals of that decade were stitched in 1998
by Exxon and Mobil who merged in a $US73 billion tie-up while
BP merged with Amoco the same year as part of a £67
billion deal that created Britain's largest company. French
major Total also merged with Petrofina in 1999.
Two years later US oil giant Chevron bought Texaco in a
$US45 billion deal.
The consultancy notes that at $US60 a barrel only three
out of the top 40 international oil companies now generate
sufficient free cash flow to cover spending, piling pressure on
their balance sheets and opening opportunities for deal making.
Several deals in the last few months have set the scene
for wider scale M&A action.
Halliburton's $US26.5 billion bid for Baker
Hughes was accelerated by falling oil prices while Spain's
Repsol bough Canada's Talisman Energy for $US8.3 billion.
Fairfax Media has previously reported energy
companies with strong balance sheets such as Devon Energy,
Chesapeake Energy and XTO Energy have the financial capacity to
be acquirers.
Energy firms with high debt repayments and largely exposed
to oil will be hit the hardest. Marathon Oil, Hess Energy and
Occidental Petroleum will suffer some of the largest earnings
declines,
Both buybacks and dividends are likely to be cut should
oil prices remain depressed, Mr Parker said.
On the flipside, Woodmac says that deals already in motion
will come under further pressure.
"Hopeful sellers will not get the offers they would
have expected just a few months ago," Woodmac notes.
"M&A will not recover until a new 'consensus' emerges
??? typically at least three to six months from the point that
prices stabilise."
The UK's Dragon Oil shelved a £500 million deal
earlier in December for rival Petroceltic citing
"prevailing market conditions".
The third quarter of 2014 produced the highest value of
transactions within the global oil and gas industry in a
decade, according to consultancy IHS Herold, but the price
slump is expected to put a lid on deals values in the current
quarter.
On Thursday Woodmac warned both crude oil and liquefied
natural gas prices are likely to face further
­downward pressure into 2015, forcing producers to adapt to
a weaker ­short-term environment before ­conditions
improve.
Oil has fallen by nearly 50 per cent since early June to
its lowest level in five and a half years. The most recent
trigger for the price fall was the decision by Middle East
cartel Opec not to cut production despite global demand falling.
Click here to see the story as it appeared on Sydney Morning
Herald web site.
The Sydney Morning Herald
Copyright © (2011) Fairfax Media Publications Pty Limited.
www.smh.com.au. Not available for re-distribution.
-0- Dec/19/2014 06:58 GMT
2014-12-19 06:58:56.318 GMT
By Perry Williams
Dec. 19 (Sydney Morning Herald) -- Collapsing oil
prices below $US60 a barrel may trigger largescale
corporate consolidation not seen since the late 1990s as
international oil companies scramble to generate enough cash to
cover their spending commitments.
Energy consultancy Wood Mackenzie has warned that if Brent
oil remains at its current levels of just $US60 a barrel, major
energy companies will have to cut spending by 37 per cent or
$US170 billion ($208 billion) relative to 2014 just to maintain
current debt levels.
"Weak oil prices through 2015 will ratchet up the
pressure on the most financially stretched in the sector,"
said Woodmac's principal M&A analyst Luke Parker.
"[We] expect to see falling deal valuations and the
emergence of a true buyers' market. Large-scale corporate
consolidation may be closer than it has been at any point since
the late 1990s."
The two biggest deals of that decade were stitched in 1998
by Exxon and Mobil who merged in a $US73 billion tie-up while
BP merged with Amoco the same year as part of a £67
billion deal that created Britain's largest company. French
major Total also merged with Petrofina in 1999.
Two years later US oil giant Chevron bought Texaco in a
$US45 billion deal.
The consultancy notes that at $US60 a barrel only three
out of the top 40 international oil companies now generate
sufficient free cash flow to cover spending, piling pressure on
their balance sheets and opening opportunities for deal making.
Several deals in the last few months have set the scene
for wider scale M&A action.
Halliburton's $US26.5 billion bid for Baker
Hughes was accelerated by falling oil prices while Spain's
Repsol bough Canada's Talisman Energy for $US8.3 billion.
Fairfax Media has previously reported energy
companies with strong balance sheets such as Devon Energy,
Chesapeake Energy and XTO Energy have the financial capacity to
be acquirers.
Energy firms with high debt repayments and largely exposed
to oil will be hit the hardest. Marathon Oil, Hess Energy and
Occidental Petroleum will suffer some of the largest earnings
declines,
Both buybacks and dividends are likely to be cut should
oil prices remain depressed, Mr Parker said.
On the flipside, Woodmac says that deals already in motion
will come under further pressure.
"Hopeful sellers will not get the offers they would
have expected just a few months ago," Woodmac notes.
"M&A will not recover until a new 'consensus' emerges
??? typically at least three to six months from the point that
prices stabilise."
The UK's Dragon Oil shelved a £500 million deal
earlier in December for rival Petroceltic citing
"prevailing market conditions".
The third quarter of 2014 produced the highest value of
transactions within the global oil and gas industry in a
decade, according to consultancy IHS Herold, but the price
slump is expected to put a lid on deals values in the current
quarter.
On Thursday Woodmac warned both crude oil and liquefied
natural gas prices are likely to face further
­downward pressure into 2015, forcing producers to adapt to
a weaker ­short-term environment before ­conditions
improve.
Oil has fallen by nearly 50 per cent since early June to
its lowest level in five and a half years. The most recent
trigger for the price fall was the decision by Middle East
cartel Opec not to cut production despite global demand falling.
Click here to see the story as it appeared on Sydney Morning
Herald web site.
The Sydney Morning Herald
Copyright © (2011) Fairfax Media Publications Pty Limited.
www.smh.com.au. Not available for re-distribution.
-0- Dec/19/2014 06:58 GMT