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2015 will see increase in oil and gas mergers, says AT Kearney

Jan 29
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2015 will see increase in oil and gas mergers...

There will be a significant increase in the volume of mergers and acquisitions (M&As) in the oil and gas (O&G) industry in 2015, according to a study from global management consulting firm AT Kearney.

Its 'Mergers and Acquisitions in Oil and Gas' report explains that plummeting prices for oil, dropping from $115 (£76.04) in June to less than $50 now, have been attributed to the rise.

AT Kearney believes that intense pricing pressure will challenge cash flows, meaning businesses in the sector will need to have a clear response to the situation, with many seeing M&As as a solution that will reshape the competitive landscape to their advantage.

The firm notes that M&As in the O&G industry showed a strong recovery in 2014 after a slowdown in 2013 and this activity is set to grow even further this year, due to recent price decreases and the decision by the Organization of the Petroleum Exporting Countries' not to cut output.

According to the company, these strategic M&A deals will be vital to adding value and aiding businesses to navigate market turbulence.

"Strategic approaches to M&A are critical to address the intense cost and cash-flow pressures experienced by O&G players," explained Richard Forrest, AT Kearney's global lead partner for the Energy Practice and co-author of the study.

"Our analysis and discussions with industry executives revealed the likely onset of a new wave of mergers and acquisitions across the value chain in the next six to 12 months."

He explained that the window of opportunity will be shorter than expected and will be driven by oil price expectations. This means that those firms with strong cash flows and healthy balance sheets will be in a better position to leverage opportunities, while others will need to define strategies to survive.  

Vance Scott, the AT Kearney global oil & gas practice leader and co-author of the study, commented: "We expect to see the largest M&A deal value, as well as largest share of deals in the upstream segment where focus on improving performance on a $/BOE [price per barrel of oil equivalent] basis will dominate."

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