Oil Price Recovery Seen as Downturn Spurs M&A Activity

Why Now Is a Good Time to Invest in Oil Producers
  • PetroChina, ONGC will probably weigh purchases, report finds
  • InterOil, Occidental listed among potential targets globally

Global oil and gas acquisitions should accelerate heading into 2016 and a recovery in crude prices may follow, according to Sanford C. Bernstein & Co.

National oil companies in Asia will probably resume purchases with PetroChina Co. and Oil & Natural Gas Corp. of India among potential buyers, Bernstein analysts including Neil Beveridge wrote in a report Monday. Possible targets include Occidental Petroleum Corp., Devon Energy Corp., Genel Energy Plc and InterOil Corp., according to the report.

“We expect companies with strong balance sheets and limited organic growth to acquire resource-rich companies with stretched balance sheets,” the analysts wrote. “An increase in M&A activity will be a leading indicator for a commodity price recovery. While we may not quite be there yet, the next 12 months are likely to see an increase in activity.”

There has been a hiatus since the deal between Royal Dutch Shell Plc and BG Group Plc earlier this year amid expectations that the market hasn’t yet reached a bottom, according to the report. Brent oil prices have fallen more than 50 percent since June 2014 as U.S. production grew, while OPEC members decided to sustain output to protect market share.

Tentative Signs

“History has shown than every major downturn in oil price over the past 50 years has been accompanied by significant increase in M&A activity,” the analysts wrote in the report. “There are tentative signs that the M&A cycle may be starting to turn with increased activity in the sector over the past month.”

Australia’s Santos Ltd. last month rejected a A$6.88-per-share offer from Scepter Partners, an investment firm backed by Asian and Middle Eastern royalty. Oil Search Ltd. in September rejected an $8 billion bid from Woodside Petroleum Ltd., saying the proposal undervalued its expansion plans in Papua New Guinea.

Canadian Oil Sands Ltd., the largest owner of the Syncrude venture in northern Alberta, said last week that it’s considering alternatives to Suncor Energy Inc.’s C$4.3 billion ($3.3 billion) hostile takeover bid and has already had interest from possible suitors.

PetroChina Co., the nation’s biggest explorer and producer, said in August it’s eyeing targets and is in discussions about assets swaps in North America, while China Petroleum & Chemical Corp., Asia’s largest refiner, also signaled it’s looking at overseas acquisitions.

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