- India features at 11th position on the global M&A list with a total of 7 deals valued at ~USD 3.3 billion
- Pension funds and PE firms continue to view the sector as potential source of growth and assured revenues
- Upstream sector continues to be the main driver for M&A in the Oil & Gas sector
India’s 11th position on the global M&A list and 1.52% share of the total value of deals will not deter companies within to be major acquirers of the oil and gas assets located overseas. The rational being the limited avenues for domestic M&A and the need to expand its global footprint for achieving energy security. Infact, a study revealed by Deloitte highlights the fact that National Oil Companies (NOCs) in India have been actively participating in acquisition of assets overseas. This includes some of the assets being offered by International Oil Companies(IOCs) as part of their portfolio rationalization.
“NOCs have historically been impervious to global trends and have acquired assets in every market situation. Their philosophy of long term holdings for energy security is indicative of a different investment strategy and is likely to drive their future plans for acquisition”, said Kalpana Jain of Deloitte Touche Tohmatsu India Private Limited
With increasing ascendance of NOCs, their requirement for larger pool of capital and technical resources combined with decreasing availability of new attractive basins for IOCs, the possibility of NOCs and IOCs jointly pursuing businesses is an increasing possibility. NOCs like ONGC have already announced its intent to work with IOCs however the success of this model will depend on management of risk perception, cultural alignment and enhanced exploration successes of such joint ventures. “An area where this collaboration is likely to work well would be in the development of commercially viable unconventional oil & gas resources where IOCs may offer some technical advantage”, added Kalpana Jain
The M&A activity in unconventional hydro-carbon resources space continues with increasing interest in oil sands, shale assets and coal bed methane activities. New entrants with higher levels of liquidity such as Pension funds and PE firms continue with their focus on the Oil & Gas sector and view it as a potential source of growth as well as assured revenues.
However, some of the challenges which are likely to shape the future oil & gas M&A landscape include- IOC’s that have built a war chest of over USD 75 billion over the last couple of years having slowed down their M&A activities preferring organic growth options instead. Also, despite significant onshore and offshore finds in different geographies, the subdued sentiment in global financial markets and volatile oil prices has slowed the pace of development of these discoveries. Participation by financial investors is likely to depend up on the stability of the oil prices and companies offering a balance portfolio with acceptable risk return profile.
The period between Q4 2008 and Q3 2010 has seen some 650 global oil & gas deals being announced, of which around 69% are reported to have achieved closure. With number of announced deals increasing from 311 to 339, concluded deals fell by around 38%. India saw a total of 7 deals valued at ~USD 3.3 billion. Failure to meet specific conditions and lack of regulatory approval were reason for unconsummated deals in the last two years. While difference in expectations played relatively minor role towards the same.
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“Key change in the business environment for the period Q4 2008 to Q3 2010 over the period of earlier study has been relative stability in the oil prices hovering between USD 60 – 85 per barrel over past twelve months and the global economies lately moving from stabilization and recovery to a certain extent”, said Kalpana Jain