Oil and gas companies remain focused on fundamentals
--Confidence in the global economy is down sharply from 55% to 27%
--Fewer oil and gas companies expect to pursue mergers and acquisitions
compared to six months ago
LONDON, Nov. 5, 2012
LONDON, Nov. 5, 2012 /PRNewswire/ --Key findings of the bi-annual Oil & Gas
Global Capital Confidence Barometer indicate that only 27% of oil and gas
executives feel that the global economy is strongly or modestly improving,
down sharply from 55% just six months ago and that the intention to sell
assets is down by almost 70%. It is evident that economic recovery is taking
longer than expected.
The global survey of 1,500 senior executives from over 40 countries, which
includes 178 oil and gas executives, also finds that uncertainty in the global
economy has made oil and gas companies more wary of mergers and acquisitions.
Only 28% are expecting to pursue acquisitions over the next 12 months, down
marginally from 31% in April and significantly down from 48% a year ago.
For those oil and gas companies that anticipate engaging in M&A, deal sizes
remain fairly small, reflecting an ongoing aversion to risky, transformation
transactions. Eighty-one percent of those surveyed indicated that they will
execute deals valued at less than US$500m and 38% will pursue transactions
Andy Brogan, Ernst & Young's Global Oil & Gas Transactions Advisory Leader
explains, "While the majority of transactions are likely to remain at the
smaller end of the spectrum, this does not rule out some larger deals where
the strategic rationale is compelling."
Respondents' confidence in their own local economy is also down sharply and
M&A appetite is down by 10%, compared to six months ago. Sixty-one percent of
oil and gas respondents indicated that they view the global downturn as
lasting at least another year. The countries with the most negative sentiment
are those most affected by the Eurozone crisis and the slowing growth of
Desire for growth declines
Companies have remained focused on the fundamentals of business, which has
lead to a decline in the prioritization of growth. While the survey reflects
this, nearly half of oil and gas companies (49% of oil and gas respondents)
are still focusing on growth compared to 56% six months ago. Companies are
increasingly turning their attention to lower-risk organic strategies that are
within their comfort zone, rather than pursuing ambitious and transformational
deals. Since the survey began in 2010, 49% is the lowest figure recorded for
There has been a marked decline in expectations for corporate earnings, with
only 36% of oil and gas respondents positive about the outlook in October
2012, compared with 52% in April 2012. In light of the economic challenges,
the focus of oil and gas respondents has switched slightly from recruitment to
retention with the percentage planning to create jobs decreasing from 43% in
April to 34% in October. Meanwhile, the number of respondents planning to keep
their current workforce size has increased significantly from 48% to 59%.
Brogan comments: "The current uncertainty seems to be driving companies to
increase their focus on preserving what they have, whether this is their
skilled workforce or their capital."
Access to capital and deleveraging trends
Seventy-seven percent of oil and gas respondents view credit availability as
stable or improving. When reviewing debt-to-capital ratio, there was a shift
in sentiment with 79% expecting the ratio to increase or remain constant over
the next three months. This is up from 71% in April. More than 80% reported
debt-to-capital ratios below 50%, and 53% with ratios below 25%. Oil and gas
companies are clearly choosing to retire debt and deploy capital more
cautiously. Only 21% were expecting to refinance loans or other debt
obligations in the next 12 months, down from 49% in the April survey.
Brogan concludes, "We expect the governing principle of the next six months to
be caution. However, there are likely to be areas such as oil field services
or unconventionals where activity remains more buoyant."
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SOURCE Ernst & Young
Contact: Pamela Christie, Ernst & Young Global Media Relations, +44 (0)20 7980
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