Oil & gas deal flow?
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!
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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