Emphasis on maintaining capital discipline driving M&A activity, says GlobalData

Emphasis on maintaining capital discipline driving M&A activity, says GlobalData
Published: 5 February 2020 - 11:45 a.m.
By: Carla Sertin

Deal activity in 2019 has largely revolved around the need to improve company finances and reduce debt. It drove multinational oil and gas companies, such as ExxonMobil, ConocoPhillips, and Chevron, to review their global operations and begin divesting non-profitable ventures, according to GlobalData.

Ravindra Puranik, oil & gas analyst at GlobalData, commented: “During the oil price downturn of 2014–2017, many exploration and production (E&P) companies were able to receive refinancing from investors for about six to seven years amid hopes of price recovery. However, oil prices have not risen sufficiently enough while the debt raised by operators is nearing its repayment period in the next two years. This is raising alarms across the global oil and gas industry, and influencing deal activity. Many companies are starting to show capital prudence, and are resisting from making rash acquisitions. A classic example of this change of approach was Chevron, which stayed away from starting a bidding war with Occidental Petroleum over Anadarko Petroleum.”

Divestment appeared as prominent global trend among several oil and gas companies worldwide during 2019. Throughout the year, companies focused on selling assets to exit from non-profitable ventures or from weak competitive positions in the market. This is likely to enable companies to focus on core businesses and reduce debt levels.

Puranik added: “Recently, oil and gas companies have focused on prioritizing their areas of operations more on markets closer to their traditional bases. Hence, we are likely to see the UK or European operators acquiring assets in the North Sea, or the US-based companies and oil majors targeting independent shale drillers.”

GlobalData’s thematic research identifies such companies within the oil and gas industry that are likely to offer either a part or the entire company for sale in the coming two years across the value-chain. It includes independent shale drillers, such as Concho Resources, Diamondback Energy and Parsley Energy; and midstream and downstream operators, such as HNA Group, Novatek Puma Energy, and Hascol Petroleum which may divest a partial stake in the near future.

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