Oilfield Services Survey reveals huge spike in M&A activity

A survey of 200 senior executives across the oilfield services industry has revealed that despite unprecedented price volatility, 86 per cent of respondents expect a surge of deal activity in the next 12 months. Seventy per cent said they were actively considering an acquisition within the next year.

Almost three quarters (74 per cent) pinpointed expansion of overseas operations as the main driving force behind deal activity, with 70 per cent expecting opportunism around distressed assets to drive deals, while 60 per cent are looking at technology-driven consolidation. Corporates operating in the offshore technology and equipment segments were seen as the most attractive targets.

Respondents revealed that Singapore, Mexico, Indonesia, China and Nigeria are the most attractive emerging markets with falling valuations and new strategic deal structures presenting lucrative outbound investment opportunities against the backdrop of continued oil price volatility.

In more mature markets, two thirds (67 per cent) of respondents said the UK would be likely to yield opportunity for buyers over the next three years.

Notwithstanding that, the report reveals optimism in the industry with an overwhelming 96 per cent predicting UKCS recovery to ‘peak’ levels of profitability. Almost half (48 per cent) expect the UKCS to rebound within five years, while over a quarter (28 per cent) predict recovery within three years subject to a general improvement in the oil price.

The research found that 83 per cent of respondents have based their five year investment strategy on an oil price range of $60-$80 bpd in the face of the new ‘lower for longer’ consensus across the oil and gas industry.

Global head of energy at Pinsent Masons, Bob Ruddiman, said: “The new landscape is very different from other downturns. We are in a more complex world where supply and demand and significant geopolitical events conspire with unpredictable consequences. Despite that, it’s encouraging to see a sense of optimism and long-termism in the sector as oilfield services companies seek to find opportunity amid the undoubted challenges.”

David McEwing, a Partner in the oil and gas team at Pinsent Masons, said: “Much of the discourse around oil and gas deals has focused on the majors and how they will respond to a more volatile environment. However, it shouldn’t be forgotten that the global oilfield services sector is on course to be worth $144bn by 2020, and is a significant employer and wealth creator.

“What our research shows is an industry on the cusp of transformation. Corporates are clearly looking to build out their international propositions and invest in technology which will maximise efficient recovery. It’s no surprise that the UK stands out in that regard given the industry’s focus on innovation and deep sea exploration – not least when we’re seeing more of those types of projects in Asia.

“There is encouragement to be taken from the optimism surrounding UKCS. There has been discussion in some circles about whether UKCS could ever recover to previous levels of profitability, but an overwhelming majority of those we spoke to see a recovery within 3-5 years, and almost a third think this will happen before then.

“That said, there’s no complacency and boards are clearly focusing hard on their corporate strategies. Yes there’s challenge but for some that means a chance to challenge the status quo in a dynamic market.”