5 minutos de lectura 14 nov. 2019
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Oil and gas industry sees sustained appetite for strategic M&A

Por Andy Brogan

EY Global Oil & Gas Leader

Líder del sector de petróleo y el gas, orador y defensor de la industria, optimista, adicto a la música y ávido viajero.

5 minutos de lectura 14 nov. 2019

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  • Global Capital Confidence Barometer – Edition 21 (pdf)

The momentum in M&A is likely to continue as oil and gas executives look to enable growth and reshape portfolios.

espite growing speculation about an economic slowdown driven by trade disputes, uncertainty surrounding Brexit, the pressure to decarbonize and geopolitical issues, oil and gas executives remain optimistic regarding the near-term economic outlook, according to the EY Global Capital Confidence Barometer (pdf).

Nearly 91% of oil and gas executives believe that the global and sector economy is stable or growing. They do not expect a global recession in the near term or consider it a significant threat to their growth.

Economic outlook


of oil and gas respondents believe that the global and sector economy is stable or growing.

Oil markets are resilient at the moment, except occasional and short-lived spikes in oil prices. Questions remain over demand, both in the short term (trade wars and economic growth) and the long term (vehicle electrification and carbon reduction). Aided by sanctions on Iran and turmoil in Venezuela, OPEC production restraint has supported prices in the face of growing North American production. Oil and gas executives remain confident about growth, with nearly 74% expecting their revenues to modestly or strongly increase and 68% of respondents anticipating their profits to witness similar jumps over the coming year.

A confluence of factors is shaping oil and gas companies’ strategies

Not surprisingly, geopolitical risks and trade disputes have topped the list of major risks to oil and gas investment. While oil markets are pricing the attacks on oil processing facilities in Saudi Arabia as a one-off event, oil and gas companies are recognizing growing geopolitical risks from such events, as well as sanctions on Iran and production loss in Venezuela. New environmental or climate-change-related policies have been identified as a significant risk, which was not the case five years ago. The oil and gas industry is facing mounting pressure from capital markets, equity markets, activist investors, governments and the general public to decarbonize. In addition, concerns over a slowdown in demand and low oil prices are creating pressure on oil and gas companies’ margins and driving them to control costs.

Companies are proactively addressing the challenges arising from geopolitical issues and changing trade and tariff rules by reconfiguring their supply chains and operations, and outsourcing or divesting non-core and back-office functions. Broader societal issues are increasingly impacting boardroom strategies and driving companies to communicate their long-term value creation to investors, stakeholders and the public. While 60% of oil and gas companies already measure and report customer value, a large majority plan to adopt social value (58%) and talent (34%) reporting within the next 12 months. As oil and gas companies tackle several external interconnected challenges, they must also overcome internal inertia and traditional barriers to become more agile and proactive in a rapidly changing world.

Staff cuts during the oil price crash, the retirement of skilled and experienced workers, and the lack of new employees to replace them have led to a skills shortage in the oil and gas industry. Notably, 60% of oil and gas companies are finding it difficult to hire and retain talent, primarily technical staff to run their core business or digital and technology experts. While automating routine or hazardous tasks and using digital technology to make the talent function more effective could help, attracting younger generations to work in the industry and reskilling the current workforce will also be important.

The talent crunch


of oil and gas respondents are finding it difficult to hire and retain talent.

Digital technology could act as a key catalyst for oil and gas companies’ growth

The oil and gas industry is well aware of technology’s disruptive and transformative potential and is making timely investments to unlock growth. Seventy percent of oil and gas executives agree that digital transformation presents an opportunity to meaningfully reposition their overall business strategy or reshape their portfolios. Nearly half of oil and gas respondents are allocating 25% to 50% of their investment capital to their digital future, with a focus on generating new growth opportunities.

Oil and gas companies are actively using venture funding, direct acquisitions, joint ventures and partnerships to invest across a range of new technologies while maintaining optionality. These routes allow companies to quickly gain access to relevant technologies and strategies, and focus their energies on tailoring and scaling them to suit their unique requirements.

To truly support digital transformation, companies need to move away from “doing digital” to “being digital.” Notably, in half of the oil and gas companies surveyed, digital capabilities reside in a separate centralized function headed by a chief digital officer instead of being infused throughout the business. Moreover, 30% of respondents consider collaboration and alignment between group strategy and business units key to the successful execution of digital strategy.

Mergers and acquisitions intentions are in line with the long-term average

The appetite for M&A in oil and gas has softened from the record high levels (67%) reached six months ago. Nearly 50% of oil and gas executives expect to pursue M&A in the next 12 months, which is in line with the long-term average. The importance of dealmaking in enabling growth and reshaping portfolios in a fast-moving and increasingly competitive environment is likely to sustain momentum in oil and gas M&A.

M&A survey oil and gas deal intentions next 12 months

Consolidation in various geographies is expected to be a key driver of M&A over the coming months. For instance, capital constraints are likely to drive further consolidation in the US Permian. Oil and gas majors looking to exit mature portfolio positions could fuel consolidation activity in Asia, similar to that witnessed in the North Sea. Furthermore, limited growth prospects in the Australian natural gas and LNG industry, due to challenges in the domestic market and competition from renewables, could drive consolidation and boost dealmaking.

The focus of M&A is shifting away from achieving bottom-line synergies to unlocking new sources of growth. This is evident from a preference (36% of oil and gas respondents) for high-value, transformative deals that significantly expand or reshape their business. Transitional M&A that could meaningfully reshape operations and fuel growth, and bolt-on acquisitions that complement and expand existing business, products or customer base, are also on the radar of oil and gas companies.

As companies continue to pursue selective, strategic deals and rigorously evaluate a deal — often through multiple lenses — before committing capital, deal pipelines and closures are expected to decline slightly. The valuations gap and rising competition, primarily from private capital, are also expected to impact deal closures. Private equity is becoming an important source of capital for the industry and is expected to be a major acquirer of oil and gas assets in the coming year.


The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

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Por Andy Brogan

EY Global Oil & Gas Leader

Líder del sector de petróleo y el gas, orador y defensor de la industria, optimista, adicto a la música y ávido viajero.