Wood Mackenzie: M&A activity - and oil price - likely to rise in 2016News // January 7, 2016
Upstream oil and gas merger and acquisition activity is set to increase in 2016, regardless of what happens to the oil price, according to Wood Mackenzie’s M&A outlook for 2016. Hower, the company bbelieves that oil prices will also rise, although not until the second half of 2016.
"Should oil prices stay low, companies will be forced to sell assets and merge businesses: to free up capital, to cut costs and to survive amid growing financial pressures," said Wood Mackenzie. However, assuming oil prices recover in 2016 – which Wood Mackenzie forecasts will happen later in the year, with Brent rising to over US$65 per barrel in the fourth quarter – companies will move quickly to catch the next up-cycle and re-focus from survival to growth.
Luke Parker, corporate analysis research director at Wood Mackenzie said: “Whether oil prices move up, down or nowhere at all in 2016, pressure to act will build, on both buyers and sellers. We expect that deal flow will increase in 2016. The drivers behind deals – and the types of deals we see – will differ as potential sellers come under increasing financial pressure. Mounting distress will force more companies to market: balance sheets will become ever-more stretched without asset sales to balance the books."
Wood Mackenzie sees the oil market tightening this year. This scenario would also prove a boon to M&A activity. In terms of likely buyers, Wood Mackenzie highlights the private equity sector as being well positioned for counter-cyclical opportunities. Reports last year suggested that private equity had anything between US$40 billion and US$100 billion of funds earmarked for investment in oil and gas.