
(Source: Hart Energy)
U.S. oil prices fell to an all-time low last week, indicating a deep recession for the oil and gas industry that threatens to push dozens of companies into bankruptcy and drive M&A in the oilfield services sector—but don’t expect to see any deals in the near-term, said an analyst with Rystad Energy.
“The wild day-to-day swings in the financial markets” are likely to hamper M&A deals, making it hard for contract negotiations to take place in the near-term, Binny Bagga, senior analyst of energy service research at Rystad Energy, said during a recent webinar. Bagga cited TechnipFMC Plc’s decision in March to postpone its planned spinoff due to turbulence in financial markets linked to the coronavirus outbreak as an example.
“Many such deals will be impacted going forward,” she added.
A drop in A&D activity has already been seen in the upstream space. In first-quarter 2020, international upstream M&A deal value plunged to $5.7 billion. By comparison, first-quarter international upstream M&A deal value has averaged $17.3 billion for the past three years, according to financial data, research and advisory firm Finbrook.
“Most of the M&A deals in the past five quarters were driven by strategic rationings, either to expand products and services or geographic reach, which may change in the near future with lenders or creditors taking control of the struggling companies,” Bagga said.
Due to considerable cost-cutting by E&P operators and delayed licensing rounds by many governments in response to the low-price environment, Rystad expects exploration spending to drop by more than 20% from its 2019 levels. At least 12% of the decline will be seen by offshore exploration drilling alone.
According to Rystad, the seismic industry will suffer the most from scrapped investment plans by E&P companies. Assuming a price scenario of $20/bbl, revenues of seismic companies are estimated to drop by 77% compared to 2019 levels.
However, Bagga described drilling contractors, particularly offshore drillers, and North American shale producers as being in the “danger zone” of facing bankruptcies and financial restructurings due to high debt and lack of liquidity. Additionally, she said the pressure pumping sector, which was dealing with pricing pressures even before the market crisis, will also see a high volume of deals and liquidation in the near future.
By second-quarter 2020, Bagga expects private equity to begin taking charge of depressed companies, though focus will be more on maintaining existing portfolios before any capitalizations on reduced market valuations are made.
Lastly, she said one of the key themes she sees dominating future deals in the service sector is investment in digital technologies.
“I definitely feel there will be more action in the digital space as companies invest in new technologies to increase efficiency,” she said, adding that energy transition opportunities and divestment of noncore assets will also impact future M&A deals.
Recommended Reading
Ring May Drill—or Sell—Barnett, Devonian Assets in Eastern Permian
2025-03-07 - Ring Energy could look to drill—or sell—Barnett and Devonian horizontal locations on the eastern side of the Permian’s Central Basin Platform. Major E&Ps are testing and tinkering on Barnett well designs nearby.
EOG Ramps Gassy Dorado, Oily Utica, Slows Delaware, Eagle Ford D&C
2025-03-14 - EOG Resources will scale back on Delaware Basin and Eagle Ford drilling and completions in 2025.
Devon, BPX to End Legacy Eagle Ford JV After 15 Years
2025-02-18 - The move to dissolve the Devon-BPX joint venture ends a 15-year drilling partnership originally structured by Petrohawk and GeoSouthern, early trailblazers in the Eagle Ford Shale.
E&Ps Pivot from the Pricey Permian
2025-02-01 - SM Energy, Ovintiv and Devon Energy were rumored to be hunting for Permian M&A—but they ultimately inked deals in cheaper basins. Experts say it’s a trend to watch as producers shrug off high Permian prices for runway in the Williston, Eagle Ford, the Uinta and the Montney.
Formentera Joins EOG in Wildcatting South Texas’ Oily Pearsall Pay
2025-01-22 - Known in the past as a “heartbreak shale,” Formentera Partners is counting on bigger completions and longer laterals to crack the Pearsall code, Managing Partner Bryan Sheffield said. EOG Resources is also exploring the shale.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.