ABERDEEN, UK – Law firm Pinsent Masons expects a surge in merger and acquisition (M&A) this year activity in the oilfield services sector.
The company interviewed 200 senior executives across the sector. Despite the continued oil price volatility, 86% expected deal activity to soar, while 70% said they were considering an acquisition within the next year.
Almost three-quarters of the respondents pointed to expansion overseas as the main driver for deal activity, with 70% expecting transactions to result from companies being forced to offload distressed assets.
Technology is another driver for consolidation, according to 60% of the respondents, with corporations operating in the offshore technology and equipment segments seen as the most attractive targets.
Singapore, Mexico, Indonesia, China, and Nigeria appear to be the most attractive emerging markets with falling valuations and new deal structures presenting potentially profitable outbound investment opportunities.
As for mature markets, 67% of respondents felt the UK would likely offer opportunities for buyers over the next three years.
The survey found that 96% believed activity on the UK continental shelf would eventually recover to “peak” levels of profitability: 48% expect the sector to rebound within five years, while 28% are more optimistic, predicting recovery within three years subject to an improvement in the oil price.
The research also found that 83% of respondents have based their five-year investment strategy on an oil price range of $60-$80.
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 $144 billion by 2020, and is a significant employer and wealth creator.”
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