Hey all,
Just wanted to learn your thoughts on how oil&gas M&A will look like going forward, as oil prices went down a lot. Does this mean a fair amount of deal activity for especially mid-market, E&P bankers since small, upstream companies are likely to have a hard time in financing and will resort to 'strategic options' in the end?
Thanks!
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I'd love to hear about this as well.
It's very quiet right now. The equity markets are frozen, which is terrible for the small & mid cap players and hence awful for bankers.
You would expect m&a activity to increase, but large e&p companies also lack access to capital to finance acquisitions. Those with cash are hoarding it and being patient - they think companies are cheap now, but realize they will get cheaper in the near term.
Also, if you don't absolutely need capital, you don't want to raise money with a depressed stock price. You also don't want to make acquisitions with that stock.
What we are seeing a lot of is share buybacks. Everyone thinks their stock is cheap (which it is, there has just been a huge pullback - overshoot - in risk taking).
Buying back stock is the best purchase a company can currently make with its cash.
Actually, I disagree
1) Lower oil price - the effect is to make assets and players look more reasonable in terms of value (less fear of over-paying); plus, there is a reduction in the endowment effect (i.e. holding onto assets where value is high as a result of high oil price)
2) Financing is not available - this is therefore going to cause the smaller and medium E&P's in particular issues with development of assets - will lead to potentially looking for partners / assistance from more cash rich players
3) Shareholders that have onerous financing in place are subject to increased margin calls etc and may look to liquidate positions - sell stakes in assets
4) Lower oil price + lower equity valulation as a result of wider equity market effect means cheaper valuations - more opportunities to pick up good assets.
So, M&A should pick up. I am a sector banker and conversations with clients indicate this is the thinking amongst the more significant players.
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