Press release

28 Nov 2018 London

Disruption spurs oil and gas M&A despite pause in oil price recovery

LONDON, 28 NOVEMBER 2018. Global oil and gas deal appetite remains robust, as disruptive forces including geopolitical uncertainty and the energy transition drive oil and gas executives to intensify portfolio reviews.

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  • Uncertainty propels 59% of oil and gas executives to review portfolios at least every 6 months
  • Q3 2018 oil price uptick: 99% say global economic growth is stable or improving
  • 55% expect to pursue deals in the next year, nearly 10% above global average

Global oil and gas deal appetite remains robust, as disruptive forces including geopolitical uncertainty and the energy transition drive oil and gas executives to intensify portfolio reviews. According to the 19th EY Oil & Gas Global Capital Confidence Barometer (CCB), 59% of executives say they are reviewing portfolios at least every six months – up from 48% in May this year – as they position themselves for a new medium-term supply-demand dynamic and improve responsiveness to evolving energy technologies.

With oil prices reaching more attractive levels during Q3 2018, sector confidence is continuing to grow despite recent price volatility and ongoing trade tensions. While nearly half (44%) of oil and gas CCB respondents cite regulation and policy uncertainty as the biggest potential threat to dealmaking, 99% believe that global economic growth is stable or improving. Eighty percent of oil and gas leaders also expect the global M&A market to improve over the next year – up from 64% six months ago.

Andy Brogan, EY Global Oil & Gas Transactions Leader, says:

“Global oil and gas sector confidence in market fundamentals, earnings outlooks, availability of credit and equity values remains strong. Leaders are responding proactively to uncertainty around the energy transition, geopolitical issues and the oil price outlook by taking steps to plan for multiple future scenarios. Indeed, 58% of sector respondents to the latest EY Oil & Gas Global Capital Confidence Barometer say they are stress testing strategies and financial resilience, and many businesses are taking the opportunity to identify assets to sell that are either underperforming or at risk of disruption.”

The CCB also finds that 55% of global oil and gas respondents expect to actively pursue deals in the coming year, almost 10% above the global average across all sectors (46%). Portfolio optimization is highlighted as a key driver for increased M&A activity in the year ahead, while 76% expect more competition for assets from private equity buyers.

Conversely, 95% of executives indicate that they have either failed to complete or canceled a planned acquisition in the last 12 months, as the valuation gap, government intervention and policy concerns continue to thwart M&A aspirations.

Brogan says: “Looking ahead, we expect to see more activity from private equity and rising cross-sector M&A driven by technology and digital. Businesses are also finding cross-sector companies attractive as they boost investments in renewables, battery technology and mobility. But changing regulations and trade uncertainty mean that the sector will mainly be looking closer to home for deals. While recent price volatility may lead companies to reassess their medium-term outlook, it is encouraging that this starts from a position of confidence.”

Geographically, the US is the top oil and gas investment destination, with North American shale expected to receive continued focused investment and drive M&A activity. Improved prospects for the development of liquefied natural gas (LNG) export projects has helped push Canada into second position, followed by the UK, Norway and the United Arab Emirates.

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Notes to Editors

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About EY Global Capital Confidence Barometer

EY Global Capital Confidence Barometer is a biannual survey compiled by Euromoney Institutional Investor Thought Leadership of more than 2,600 senior executives from large companies around the world and across industry sectors. This is the 19th biannual CCB in the series, which began in November 2009; respondents for the 19th edition were surveyed in August and September 2018. This issue drew responses from 105 Oil & Gas executives from 45 countries. The objective of the Global Capital Confidence Barometer is to gauge corporate confidence in the global and domestic economic outlook, to understand boardroom priorities in the next 12 months and to identify emerging capital practices that will distinguish those companies building competitive advantage as the global economy continues to evolve. ey.com/ccb #EYCCB

How EY’s Global Oil & Gas Sector can help your business

The oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY’s Global Oil & Gas Sector supports a global network of more than 10,000 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oil field subsectors. The sector team works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant sector issues. With our deep sector focus, we can help your organization drive down costs and compete more effectively.

For more information, please visit ey.com/oilandgas.