A desire to capitalize on distressed situations, grow international market share and acquire new technology will drive a surge in M&A activity in the oilfield services sector during 2016, according to major new research from international law firm Pinsent Masons.
A survey of 200 senior executives across the oilfield services industry has revealed that despite unprecedented price volatility, 86% of respondents expect a surge of deal activity in the next 12 months. Seventy per cent said they were actively considering an acquisition within the next year.
Almost three quarters (74%) pinpointed expansion of overseas operations as the main driving force behind deal activity, with 70% expecting opportunism around distressed assets to drive deals, while 60% are looking at technology-driven consolidation. Corporates operating in the offshore technology and equipment segments were seen as the most attractive targets.
Respondents revealed that Singapore, Mexico, Indonesia, China and Nigeria are the most attractive emerging markets with falling valuations and new strategic deal structures presenting lucrative outbound investment opportunities against the backdrop of continued oil price volatility.
In more mature markets, two thirds (67%) of respondents said the UK would be likely to yield opportunity for buyers over the next three years.
Notwithstanding that, the report reveals optimism in the industry with an overwhelming 96% predicting UKCS recovery to 'peak' levels of profitability. Almost half (48%) expect the UKCS to rebound within five years, while over a quarter (28%) predict recovery within three years subject to a general improvement in the oil price.
The research found that 83% of respondents have based their five year investment strategy on an oil price range of $60-$80 bpd in the face of the new 'lower for longer' consensus across the oil and gas industry.
Global Head of Energy at Pinsent Masons, Bob Ruddiman, said: "The new landscape is very different from other downturns. We are in a more complex world where supply and demand and significant geopolitical events conspire with unpredictable consequences. Despite that, it's encouraging to see a sense of optimism and long-termism in the sector as oilfield services companies seek to find opportunity amid the undoubted challenges.
" David McEwing, a Partner in the oil and gas team at Pinsent Masons, said: "Much of the discourse around oil and gas deals has focused on the majors and how they will respond to a more volatile environment. However, it shouldn't be forgotten that the global oilfield services sector is on course to be worth $144bn by 2020, and is a significant employer and wealth creator.
"What our research shows is an industry on the cusp of transformation. Corporates are clearly looking to build out their international propositions and invest in technology which will maximize efficient recovery. It's no surprise that the UK stands out in that regard given the industry's focus on innovation and deep sea exploration – not least when we're seeing more of those types of projects in Asia.
"There is encouragement to be taken from the optimism surrounding UKCS. There has been discussion in some circles about whether UKCS could ever recover to previous levels of profitability, but an overwhelming majority of those we spoke to see a recovery within 3-5 years, and almost a third think this will happen before then.
"That said, there's no complacency and boards are clearly focusing hard on their corporate strategies. Yes there's challenge but for some that means a chance to challenge the status quo in a dynamic market."
The oilfield services sector is expected to be worth $144bn by 2020. Source: http://www.marketsandmarkets.com/PressReleases/oilfield-services.asp
According to the most recent estimates, in 2013 the UK the oilfield services was worth £27bn. Industry paid corporation tax of £0.6 billion, directly employed at least 134,000 people on an average salary of £50,000, and generated exports of £16.4 billion. http://www.ey.com/UK/en/Industries/Oil---Gas/EY-review-of-the-UK-oilfield-services-industry-key-highlights
About the survey
Pinsent Masons engaged Mergermarket to surveyed 200 senior-level executives, drawn from 150 corporates and 50 private equity firms. Ten of the most prominent banks in the sector were also surveyed on a qualitative basis. Interviews were conducted during H2 2015.
Corporate revenues of respondent companies are split between $1bn+ (31%), $101-1bn (30%) and $20m-100m (39%). The survey included a combination of qualitative and quantitative questions and all interviews were conducted over the telephone by appointment. Results were analyzed and collated by Mergermarket and all responses are anonymised and presented in aggregate.
All of the respondents have operations or investments in the UK oilfield services sector. 52% of respondents are headquartered in the UK, and the remaining 48% are headquartered outside of the UK but maintain offices in the UK – 26% in North America, 9% in the Nordic countries, 9% in other European countries, 2% in MENA, 1% in Australia and 1% in Russia.
Survey participants include: ACE Alfred Cheyne Engineering Ltd, Aker Solutions ASA, Archer Ltd, ARKeX Ltd, Awilco Drilling Plc, CETCO Energy Services, CIRCOR International, Inc., Crondall Energy Subsea Ltd, Dando Drilling International, Diamond Offshore, Drilling, Inc, DOF Subsea Group, Dolphin Drilling AS, EnerMech Ltd., Ensco Plc, Expro International Group, Flexlife Group Ltd, FoundOcean Limited, Geoquip Marine AG, Gulf Marine Services, Hunting Plc, KD Marine Ltd, MacDermid Offshore Solutions, Maersk Drilling Norge AS, MRC Global Inc, Noble Corporation Plc, N-Sea Group, Ocean Rig UDW Inc, Oilfield Solutions Ltd, PD&MS Energy, Petroleum Geo-Services ASA, Petroleum Technology Company, Prosafe SE, ROVOP Ltd, Saab Seaeye Ltd, Saipem Ltd, Saltire Energy Ltd, Sand Monitoring Services Ltd, Schlumberger, Scientific Drilling Controls Ltd., Sembmarine S L P, Technip S.A., Welltec UK Limited, Wood Group.
