Low Crude Prices to Boost Oil & Gas Deals, A.T. Kearney Says

  • Number of M&A transactions fell 37% last year: A.T. Kearney
  • Debt issued by oil and gas companies was $3 trillion by 2014

Low oil prices will spur more mergers and acquisitions in the oil and gas industry this year with some companies forced to sell to avoid bankruptcy, according to consultants A.T. Kearney.

Private equity firms are probable buyers, Richard Forrest, global lead partner for the company’s energy practice, said in an interview in Dubai. The number of oil and gas transactions declined 37 percent in 2015 as their value fell 2.5 percent to $469 billion, led by Royal Dutch Shell Plc’s acquisition of BG Group Plc and Energy Transfer Equity LP’s purchase of Williams Cos. This year, the number of transactions will go up but the value will probably decline without any big deals, he said.

“There’s a lot of debt out there and that’s to some extent what is going to be the trigger of the wave of M&A deals,” Forrest said. The amount of debt held by oil and gas companies worldwide tripled to $3 trillion by 2014 compared from 2006, he said. “This year we expect a lot of distressed assets to become available.”

Crude prices have plunged almost 60 percent in the past two years, slashing profit at the largest oil companies and causing U.S. shale producers to scale back output. Bankruptcy filings among companies with publicly registered debt in the energy sector are starting to rise, according to Bloomberg Intelligence. Brent crude fell as much as 1.9 percent on Monday and was down 0.6 percent at 3:05 p.m. in Dubai.

Energy-focused oil and gas private equity firms have about $38 billion to fund deals, according to A.T. Kearney. The largest oil companies will be more focused on selling assets than buying this year, while Middle East national oil companies are not likely to be active this year, according to the report.

Activity may pick up at the end of the year, driven by more stability and possibly higher crude prices, Forrest said. “It does support oil prices coming back and it gives investors the needed confidence to proceed with deals.”

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