Oil, gas companies embrace mergers and acquisitions to stay in business
A fuel pump at a petrol station. PHOTO | AFP
What you need to know:
- Weak demand from China emanating from the slowed economic growth was also at play towards the end of the year.
- According to Evaluate Energy, there is a possibility that there were undisclosed transactions last year, which means that the value of M&A deals could be higher.
Oil and gas exploration companies are selling their entire interest, or part, in areas with weak prospects, as they focus on survival strategies and ongoing production projects owing to dropping of crude prices.
As a result, global mergers and acquisition deals in the upstream oil and gas sector last year were valued at Sh16.6 trillion ($163 billion), according to a new report from UK’s Evaluate Energy.
Weak demand from China emanating from the slowed economic growth was also at play towards the end of the year.
The US benchmark crude West Texas Intermediate (WTI) averaged at $48.79 a barrel last year and closed the year at $36.36.
Last year’s deals were four per cent below the value recorded in 2014 and 10 per cent higher than in 2013.
“Since the majority of company decision makers expected the lull in oil price to recover in the medium term, 2015 marked a year when potential acquirers were keen to increase reserves at an attractive price and target companies were reluctant to sell. There was a series of attempted large corporate takeovers being rebuffed by the boards of the target companies,” reads the report.
Half of the total value of last year’s deals relates to a takeover of UK’s BG Group by Royal Dutch Shell during the second quarter that cost Sh8.6 trillion ($84 billion).
The takeover is said to be the largest in the oil and gas industry in the past 17 years.
BG Group has exploration interests in Kenya and is licensed for blocks L10A and L10B located within the Lamu Basin.
In November, Maersk Oil and Gas made a move to acquire half the exploration interest held by Canada’s Africa Oil Corporation in Kenya at a cost of Sh86.2 billion ($845 million).
The transaction has been ranked by Thomson Reuters as among the top deals in sub-Saharan Africa for 2015.
According to Evaluate Energy, there is a possibility that there were undisclosed transactions last year, which means that the value of M&A deals could be higher.
