Our 16th Global Capital Confidence Barometer (CCB) survey of oil and gas executives reveals a positive outlook, with over 90% of companies expecting their pipeline to increase or remain stable and around 40% expecting the market valuations to improve.
M&A activity continues to gain strength following heightened dealmaking in the first quarter of 2017, and ongoing geopolitical uncertainty has not suppressed deal appetite among executives.
A new consensus on oil and gas prices and relentless pressure on capital efficiency are driving a greater emphasis on portfolio optimization. This has driven the deal activity, especially for the upstream operators.
Companies have disposed of non-core assets and acquired acreage in core areas. US shale has been a major area of M&A activity in the first quarter of 2017, which is expected to continue, especially targeting assets in the Permian Basin. Canada has been equally active, with several majors making moves to exit from oil sands. We are also seeing increasing signs in the pickup of activity in other regions.
Faced with changing customer behavior, oilfield services (OFS) companies are responding by embracing new technologies and contract models, fundamentally changing their business models and transforming their relationships with their customers. More fragmented than ever, the OFS industry is adapting to the new environment and is starting to consolidate as a response to the fundamental changes in its customer base.
We feel M&A will remain robust and accelerate, as the appetite for acquisitions of our survey respondents continues to be optimistic, with over 60% of executives looking to transact and 90% expecting their pipeline to increase or remain stable in the next 12 months.
Valuation levels and sentiment suggest companies now have the opportunity to take advantage in a market gaining momentum. History shows that acquisitions help create differential value to companies and position them for sustained market leadership. Now is the time to invest and press forward.