Photographer: Brent Lewin/Bloomberg

There's Money to Make in Oil for Brave Investors, DNB Says

  • More companies making themselves ready for acquisitions
  • M&A may pick up from second quarter, DNB's Behncke Says

Moving early in the oil sector while prices are low could pay off. But it’s not for the faint of heart, according to Norway’s largest bank.

While low oil prices are making investors and companies on the lookout for acquisitions think twice, those confident in their valuations and willing to take risk stand to make a lot of money in the depressed oil services industry, according to Peter Behncke, DNB ASA’s global head of investment banking.

“You have to be very brave to make a move in those markets,” he said in an interview in Oslo on Monday. “But history shows that those who get it wrong will lose, those who get it right will make a fortune.”

With Brent crude at about $33 a barrel oil, service companies in western Europe’s largest oil producer are feeling the squeeze. Share prices have plummeted and credit spreads have widened limiting refinancing options for drillers and vessels suppliers leading companies such as Polarcus Ltd. and Havila Shipping ASA to seek to restructure their debt.

The OBX oil service index gained 4 percent to 34.17 as of 3:37 p.m. in Oslo. The index is down 51 percent over the past year.

“People that are considering buying another company now, they have done their homework,” he said. “There’s no gambling. More companies are eager to learn whether this is a good time or not. They are making themselves ready for making the move.”

Transactions may gain pace starting in second quarter, both within oil services and oil exploration and production, as the gap between buyer and seller has narrowed in the past months, according to Behncke.

“It’s becoming more a need for certain oil-related companies to either raise equity or do something structurally to actually be on top of the situation,” he said. “I would say that if you look at transactions, whether it’s M&A or an equity raise, the probability of something happening has been brought forward rather than pushed out.”

The investment banker urges companies to raise equity early rather than late unless they have capital available. Management may take the lead in companies with good liquidity in the stock and raise the necessary capital while smaller illiquid companies will need to negotiate with their lenders, according to Behncke.

“The owners need to understand that we have a situation that needs everyone to sit down,” he said. “Out of that we will see transactions coming. The question is whether banks and creditors will drive those transactions or will the companies and management drive those changes.”

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