Ernst & Young:
Oil-price collapse to boost global M&A activity in 2015
2014, Jan. 22
+ + + The oil-price collapse
will facilitate increased global transaction activity in 2015 as companies
revise and implement new strategies, according to a quarterly report on
the industry published by Ernst & Young.
“On one hand, upstream
companies with strong balance sheets operating in low-cost basins will be
well-positioned to not only weather the dip in prices, but also scoop up
assets from those with less liquidity or more capital intensive assets,”
Mitch Fane, E&Y oil & gas transaction advisory services leader, explained
in the report.
“At the same time, companies across the O&G segment will
be pressured to review and reshape their portfolios to optimize capital
and create higher returns,” Fane said.
During fourth-quarter 2014,
activity rebounded as total reported deal value increased 10%
quarter-over-quarter and 67% year-over-year. However, total deal volume
was down 39% quarter-over-quarter and 20% year-over-year. Global upstream
deals followed a similar trend, as values rose 21% and volumes lost 22%
from the previous year.
|Midstream transactions continued to dominate
with 19 deals in North America alone for $56.6 billion.
expenditures in 2015 from oil field services companies, meanwhile, may be
cut as much as 20-25% as companies seek to keep debt levels under control
and slow production growth, E&Y says.
|Upstream operators are expected
to put significant pressure on oil field services supplies to reduce
costs. In response, oil field services firms will fight to retain market
share through both innovation and consolidation.
|Oil, gas price outlook:
Based on current forecasts of oil demand
and non-OPEC supply, in this year’s first half, the market is
expected to need substantially less than 30 million b/d of crude
from OPEC, which is the amount the cartel has been producing and
vowed to keep producing
|If OPEC continues to produce
more than 30 million b/d and there are no unexpected supply outages, the
market could see a surplus of as much as 1.5-2 million b/d in the first
half, E&Y says.
|By the second half, the price collapse is expected to
cause US production growth to slow somewhat, but not to reverse. Seasonal
demand increases will also play a role in the slightly improving
supply-demand fundamentals, E&Y notes.
|The sharp decline in prices has
also impacted global gas markets, as oil-linked LNG has fallen to levels
on par with hypothetical US LNG export prices.
|Although US natural gas
prices have weakened less than oil prices, they are still declining due to
continued high production, weak early-winter demand, relatively high gas
storage levels, and the decline in NGL prices.
|Due to their link to oil
prices, global gas prices also declined in fourth-quarter 2014. Most
notably, the oil-price collapse has minimized the advantage of spot-priced
gas since oil-linked LNG trading prices are now essentially on par with
hypothetical US LNG exports.
Refining margins declined in the fourth quarter, except in
Asia, but 2014 was a solid year overall, E&Y says. Average annual margins
across the globe were down slightly except in the US East and Gulf Coasts.
|Refiners in the US Midwest had another strong year, E&Y says, although
their advantage lessened as transportation bottlenecks were removed.
Notional cracking margins on a New York Mercantile Exchange 3-2-1 basis
recovered to around $25/bbl during the year before sliding again in the
|Refining margins going forward are likely to come under
pressure in the first quarter as more refining capacity starts up amid
high global inventories and with only modest oil demand growth, E&Y says.
The expected narrowing US crude differentials will also limit some of the
advantage to US refiners.
Source Oil & Gas Journal
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