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Geographical expansion and tech acquisition to drive 'surge' of oilfield services mergers

Out-Law News | 25 Jan 2016 | 10:01 am | 2 min. read

Senior oilfield services professionals are expecting a "surge" of company mergers and acquisitions over the next 12 months, driven by the desire to expand internationally and acquire new technology, according to new research.

A survey of 200 senior executives across the industry was commissioned by Pinsent Masons, the law firm behind Out-Law.com. It found high levels of confidence in the ability of the UK Continental Shelf (UKCS) to recover to 'peak' levels of profitability despite current unprecedented price volatility, subject to an improvement in oil prices. Almost all respondents predicted a return to price levels last seen in the first half of 2014, with more than a quarter of respondents saying that they expected this to happen within the next five years.

Oil and gas expert David McEwing of Pinsent Masons, the law firm behind Out-Law.com, said that the research showed "an industry on the cusp of transformation". The findings were based on extensive interviews conducted by Mergermarket on behalf of Pinsent Masons.

"Corporates are clearly looking to build out their international propositions and invest in technology which will maximise efficient recovery," McEwing said. "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 three to five years, and almost a third think that will happen before then. That said, there's no complacency and boards are clearly focusing hard on their corporate strategies," he said.

The oilfield services industry is expected to be worth $144 billion globally by 2020 and includes companies that provide drilling, seismic surveys, facilities, equipment and support services to exploration and production companies. In the UK, oilfield services companies directly employed at least 134,000 people on an average salary of £50,000, generated corporation tax receipts of £600 million and exports of £16.4bn in 2013.

The research found that 86% of respondents expected a surge in deal activity in the next 12 months with 30% predicting a "major" surge. Seven in ten respondents said that they were "actively considering" an acquisition of their own over the next 12 months. The main triggers for this increase in activity were the desire to expand overseas operations, suggested by 74% of respondents; "opportunism" around distressed assets, suggested by 70%; and technology-driven consolidation, suggested by 60% of respondents.

Companies operating in the offshore technology and equipment fields were seen as the most attractive targets by respondents to the research; while Singapore, Mexico, Indonesia, China and Nigeria were seen as the most attractive emerging markets to invest in. Among the more mature markets, 67% of respondents backed the UK as yielding opportunities for buyers over the next three years.

The research found that 83% of respondents have based their investment strategy over the next five years on an oil price in the $60 - $80 per barrel range.

"The new landscape is very different from other downturns," said energy law expert Bob Ruddiman of Pinsent Masons. "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," he said.

Pinsent Masons will be launching the full report in London on 4 February.