Domenica, 14 Febbraio 2016 20:33 | Oil, gas transactions in Africa lowest since 2010

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Cape Town - Total oil and gas transaction volume and values in Africa were at their lowest levels since 2010 last year, according to EY’s global oil and gas transactions review 2015.

The review found, however, that there is renewed interest from a wide range of financial players, not only distressed funds, but also private equity firms, family offices and infrastructure funds.

“In 2016, supply of pre-production investment opportunities is likely to remain higher than the demand. Access to equity and debt capital will be constrained and, as such, new partnerships will be needed to grow or survive, said Claire Lawrie, Africa energy sector lead at EY.

"Potential sellers will need to think more broadly about possible investors, and potential buyers will need to be creative and flexible to complete deals. Against this backdrop, African governments may find themselves in competition for capital and are likely to face the challenges of managing their portfolios, fiscal regimes and licensees’ continuing appetite to invest.”

Depressed oil prices are expected to continue to unearth opportunities for these investors to expand their product offering and to diversify their activities in the market.

Upstream deal value in Africa dropped by 33% from 106 to 74 between 2014 and 2015. The total deal value dropped by 67% from $10.8bn to $3.6bn. Downstream deal saw an uptick in activity with six deals recorded compared to no recordings for 2014.

Globally, the review found that deal volume was down in nearly all sub-sectors in 2015 compared to 2014. This was most notably in oilfield services (OFS), where deal activity decreased by almost 40% from 320 to 193 and in upstream where deal volume dropped from 1 467 in 2014 to 910 in 2015, a 38% decline.

EY, therefore, expects that more oil and gas companies will succumb to stress in the sector. This will drive transactions in 2016, after global deal volume and value fell short of expectations in 2015, dropping by 33% and 17% respectively year-on-year.

“The reduced upstream transaction activity was due to a number of factors, such as relatively high capex African projects being seen as less economically attractive in the low oil price environment; lower capital spend available to companies for deals or projects; large gaps between buyer and seller deal value expectations; lack of social and regulatory stability in some African countries; and traditional international investors focusing on their projects at home,” said Lawrie.

“The six downstream transactions in Africa during 2015 were a marked increase from the prior year. These transactions were primarily in West and Southern Africa. Given the growing interest in the continent, we expect a moderate increase in downstream deal activity during 2016.”

According to Andy Brogan, EY global oil & gas transaction advisory services leader, declining crude prices coupled with an uncertain outlook challenged transactions in 2015.

"Now, with greater consensus around a ‘lower for longer’ outlook shrinking the valuation gap between buyers and sellers, we’ll likely see more deals come together this year," said Brogan.

"Companies that have shown resilience amid $40 to $50 per barrel of oil are beginning to face insurmountable distress as the price sinks below $40. All signs point to a more opportunistic market for M&A activity.”

The review found that upstream companies are pairing their ongoing focus on cost cutting with high grading their portfolios.

This may lead to a consolidation of ownership around core assets as companies seek to increase control over their overall capital outlay and maximise opportunities to use their operational capability to deliver value. That consolidation is expected to also cascade into the OFS sector.

Consolidation, which began in 2014 with several megadeals, will continue this year with significant follow-on activity as merged companies are forced to sell businesses following regulatory pressures, according to Brogan.

Vertical integration is also high on the agenda for OFS companies seeking to build full-service delivery capabilities to meet operators’ increasingly demanding price and delivery expectations.

"There’s an opportunity for equipment manufacturers, as well, to acquire suppliers and recover aspects of the value chain traditionally outsourced to low-cost regions like China and India," he said.

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