A report on the oilfield services industry by Ernst & Young and mergermarket indicates that the vast majority of the survey respondents (84 per cent) are expecting an increase in M&A and none expect a decrease.
The report, Ernst & Young Dynamic Dealmaking in Oilfield Services, shows that nearly three quarters of the 50 respondents, who encompass industry executives and private equity practitioners in the oilfield services sector, plan to make acquisitions in the next 12 to 24 months with companies based in North America (80 per cent) expecting to lead all regions in activity, followed by Asia Pacific (52 per cent), Western Europe (26 per cent), Eastern Europe (14 per cent) and Africa (12 per cent).
Multiple drivers explain the increase in appetite for M&A. Most respondents (88 per cent) cited access to new markets and customers as the primary driver of acquisitions, while vertical integration to extend services and access to new technology followed closely. Oilfield services (OFS) companies will also look for opportunities to broaden and expand their service offerings.
Fifty four per cent of respondents cited changes in regulatory framework as the biggest challenge to executing their business strategy, with the second greatest challenge (50 per cent) identified as economic and commodity price uncertainty. One fifth of respondents say political upheaval in major oil provinces presents the biggest macroeconomic threat, while an additional 20 per cent singled out the possibility of resource nationalism as the primary challenge.
Andy Brogan, global transactions advisory services leader for oil and gas, says: "The energy sector faces multiple pressures requiring companies to remain nimble and proactive in anticipating and adapting to the changing environment. The ability to integrate will be vital to success in the emerging markets while balancing the ability to deliver cost synergies in the developing markets. Through M&A and joint ventures, OFS companies can minimise risk and maximise earning potential."
The uncertain business environment has created considerable risk within the OFS sector, causing possible obstacles to companies’ financing. Despite the short-term difficulties, just over half of the respondents expect OFS companies to have greater access to equity over the next one to two years.
