Global Oil and Gas transactions have suffered a modest decline in both deal count and total value in the first half of 2012. However, increasing merger & acquisition (M&A) interest by MENA-based energy and petroleum (E&P) companies and investors has been witnessed, according to Deloitte’s whitepaper entitled ‘Mergers and Acquisitions in the Oil and Gas Industry: Current upstream M&A issues and transaction considerations.’
According to the Deloitte whitepaper, in recent months, the MENA region has seen some significant developments and opportunities for upstream M&A. With the expectations for Libya, now poised to return to full-scale oil production in the near future and Iraqi oil production, which has now passed the 3 million barrel per day level, foreign investors is eyeing opportunities regionally.
“When we assess the current state of the Oil and Gas sector in the MENA region, the question remains as to whether these nations will achieve optimum production levels or whether they will continue to face constraints due to outdated infrastructure, political challenges, policy uncertainty and continued security threats,” Kenneth McKellar, energy and resources leader, Deloitte Middle East, said.
“These are some of the issues that interested E&P companies are being faced with,” he added.
North African countries are also now seen to be returning to the ‘Business as usual’ mode, with an increase in foreign investments. Legacy risks remain, however, as off-take contracts with national oil companies continue to experience disruption during the transition period of governments with E&P companies in the region facing significant challenges to working capital management, the whitepaper highlights.
The Deloitte whitepaper also sheds light on the unconventional sources of hydrocarbons, such as US shale gas exploration, oil production from the bituminous sands in Canada and deep water production in Brazil’s pre-salt blocks that have provided new opportunities and a recent surge in interest from international oil companies (IOCs).
“Whilst the uncertainty caused by the Arab Spring might be keeping certain investors out of these markets, there are other investors who are taking a longer term view on opportunities in MENA, particularly strategic investors who have the financial and operational resources, to acquire these assets at low prices,” Adnan Fazli, oil and gas financial advisory leader, Deloitte Middle East, added.
The Deloitte whitepaper also takes a closer look at the M&A issues that face investors looking to transact in the region, and how these are being managed through the screening, diligence and valuation phases of the transaction.
While oil and gas prices rise and fall, a resurgent regional and global energy market, driven by increased demand from many Asian economies and the MENA region, and the investment needs that accompany that resurgence, should set the stage for sustained M&A activity over the longer term the Deloitte whitepaper highlights.