Oil Price Fall-Out- Shell Plans Buying BP

By Yemisi Izuora-Lagos
Since July, the collapse in world oil prices has been the talk of global financial markets. Brent crude oil, the global benchmark, has fallen from $115 per barrel to under $69, a price not seen since 2009.

This has been painful for investors holding oil & Gas stocks such as Royal Dutch Shell (RDS) or BP, with Royal Dutch Shell shareholders nursing losses of 10 percent since June, and BP shareholders an even more painful 15 percent loss since June.

There have been a number of consequences of this sharp oil price fall, one of which has been an increase in merger & acquisition activity in the global Oil & Gas sector.

For instance in Oil Services, Halliburton is in the process of taking over US rival Baker Hughes for $35bn.

But perhaps the biggest potential takeover in this sector is still ongoing with talk of Royal Dutch Shell buying BP, despite the fact the British petroleum giant is worth over £136 billion at its current 425p share price.

Despite Crude Oil Price Decline, Global Upstream M&A Transaction Value Rose in 2014, IHS Says

Despite a late-year plunge in crude oil prices, robust merger and acquisition activity (M&A) in the first 10 months of the year fueled an increase in the total transaction value for global upstream oil and gas M&A deals in 2014, which rose 23 percent to $173 billion, according to analysis from information and insight provider IHS.

This rebound in 2014 transaction value is particularly noteworthy for the industry after transaction value for global upstream oil and gas M&A deals fell by almost half during 2013 to $140 billion, the lowest level since the 2008 recession.

In 2013, rather than shopping for deals, oil and gas companies shifted their focus to developing their vast inventories of previously acquired reserves, resources and acreage.

“The uncertainty caused by the severe decline in oil prices during the final two months of 2014 nearly brought deal activity to a standstill,” said Christopher Sheehan, director of energy M&A research at IHS.

He said, “Buyers and sellers are having difficulty reaching a consensus because of the oil price tumble, which is causing significant uncertainty for the industry.

However, transformative acquisition opportunities typically arise at the bottom of the crude price cycle, so Repsol’s late-year agreement to acquire Talisman Energy may be the tip of the iceberg for corporate consolidation if crude prices remain depressed throughout 2015. The deal may foreshadow further consolidation in the oil and gas industry.”

Another significant change in 2014 upstream M&A activity was a plunge in acquisitions by Asian and Caspian regional national oil companies (NOCs). Asian and Caspian regional NOCs were buyers in half of the 10 largest deals in 2013, but none of these companies were buyers in the 10 largest deals in 2014. Seven of the 10 largest worldwide deals involved North American-based E&Ps as either buyer or seller in transactions that each exceeded $2 billion.

The value of overseas acquisitions by Chinese NOCs fell steeply in 2014 to less than $3 billion from $20 billion in 2013.

However, private Chinese financial and industrial conglomerates emerged as more active buyers in the global M&A market. And the Chinese NOCs reached large, forward-sale oil and gas supply agreements worth tens of billions of dollars with Russia, highlighting the strengthening of ties between Asian NOCs and Russia as sanctions reduce western investment.

Western integrated oil companies, such as Royal Dutch Shell, which divested approximately $15 billion in worldwide upstream assets in 2014, were among the most active global market sellers during the year.

According to IHS energy M&A research, worldwide deal count (which includes both asset deals and corporate deals) rose 4 percent in 2014, but remained well below the 10-year high in 2012. The number of worldwide asset transactions climbed by 4 percent in 2014, reversing the almost 10 percent decline in the prior year, noted IHS.

Global spending on unconventional assets in 2014 increased substantially to more than $70 billion, after plunging by nearly 50 percent in 2013 to approximately $45 billion.

“Our IHS analysis of upstream companies indicates debt-laden oil and gas companies that are not well-hedged could increasingly become takeover targets in 2015,” Sheehan said.

“The volume of global assets for sale could surge if oil prices continue to remain depressed during the first half of the year.

Our new IHS Significant Energy Assets on the Market (SEAM) database, which is available on IHS Connect, is already tracking more than $150 billion of oil and gas property and corporate opportunities and those opportunities are likely to expand.”

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