The oil and gas sector has become increasingly positive about corporate earnings and credit availability to the point that 69 percent of industry executives expect to actively pursue an acquisition over the next 12 months—with the deal appetite in oil and gas at its highest level since 2013, the EY Oil & Gas Capital Confidence Barometer (CCB) survey showed on Wednesday.
Deal appetite among oil and gas executives was much higher than the global average of 56 percent, EY said, noting that 96 percent of the oil and gas senior managers expect the M&A market to improve or remain stable over the coming 12 months.
"Oil and gas transactions activity has continued to be strong through 2017, as companies increasingly look for opportunities to consolidate their position, optimize portfolios and drive cost reductions. Buoyed by supportive market factors, including healthier balance sheets, overall consensus on oil price outlook and private equity firms with money to spend, M&A is likely to be propelled further during the coming months," said Andy Brogan, EY Global Oil & Gas Transactions Leader.
So far this year, the U.S. and Canada were the top two M&A venues, with deals in the U.S. shale patch and with several companies exiting Canadian oil sands. The top five M&A investment destinations list also included Australia, the UK, and Saudi Arabia, according to the EY survey.
Portfolio optimization has replaced capital spending guidance as the number-one industry theme, due to the uncertain outlook on oil demand in the long run, and to the innovation and disruption narrative. Due to these trends, 78 percent of executives review their portfolios at least once every six months, according to EY.
Last month, A.T. Kearney said that "the fog is lifting" on oil and gas M&A, as the sector emerges from a debt-driven overhaul. The survey showed that more than two-thirds of executives expected deal-making to increase in the year ahead.
In the U.S., although the number of oil and gas deals rose in the third quarter, their total value dropped substantially as companies are seeking smaller, bolt-on acquisitions to fine-tune and rationalize their portfolios after the period of big transformational mega-deals, PwC said in its Q3 2017 quarterly US Oil & Gas deals report at the end of October.
By Tsvetana Paraskova for Oilprice.com