A new paradigm for oil and gas sector?
- Strong M&A activity coexisting with market volatility
LONDON, MOSCOW, 6 December 2011 – The fifth EY Global Capital Confidence Barometer finds that more than half of all the oil and gas respondents remain cautiously optimistic about the broader global economy, with the majority focused on growth over the next 12 months and only 4% saying they were now focusing on survival. Half of the oil and gas executives expected to make an acquisition in the next 12 months.
The Capital Confidence Barometer, which surveyed over 1000 international executives including almost 100 from the oil and gas sector, reveals that when asked for their perspectives on the state of their National economy, 73% of all respondents surprisingly cited a stable or improving local environment.
Andy Brogan, Global Transactions Advisory Sector Leader for Oil & Gas commented: “Confidence in the local economy has declined over the past year but remains remarkably robust considering the level of volatility and uncertainty in the global economy at the moment.”
Grigory Arutunyan, EY partner: “Russian oil and gas companies continue to show a growing interest in investments in foreign upstream and downstream assets. The need for capital and technology to develop difficult fields and construct modern plants for the production of liquefied natural gas thus remains an important issue for production companies in Russia.”
Oil and gas focused on growth
The oil and gas industry remains consistently focused on the growth agenda, and transactions are expected to continue to be a major part of that agenda. The survey results show a picture of corporate resilience amid the turmoil. When asked their expected organizational focus over the next year, 52% of the oil and gas respondents cited growth.
For those companies expecting excess cash flows over the next year, nearly two-thirds (66%) are expected to prioritize growth, substantially more than the next-most-favored option of paying down debt.
Brogan advises that not surprisingly, environmental risks were seen to be the biggest threat to our oil and gas respondents, ranking ahead of banking/ financial reform and taxes. “Essentially this is because of the events of the last year, if oil prices come under pressure as a result of a global economic slowdown this could change rapidly.”
Despite the economic instability, the outlook for deal volumes is stable with dealmakers’ appetites having increased marginally in the last six months with forty-eight percent of those surveyed saying they expected to make an acquisition in the next year. In addition, an increase in regulatory pressures and board/audit scrutiny were cited as the top deal pressures for the oil and gas industry.
Transaction activity was generated in both expected and unexpected areas. The oil and gas respondents noted that the value creation did not always come from where they had expected it would. However geographic reach remained the key driver.
Brogan further commented that it is interesting to note that the oil and gas industry remains keen to transact in the current volatile environment which may be applicable to the relatively robust oil price. In this context capital efficiency remains a focus with 73% of respondents considering divestments of non-core assets.
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