Only 31% of oil and gas executives expect to pursue M&A in the next 12 months: Ernst & Young
Canadian oil and gas companies transact with cautious optimism
CALGARY, May 17, 2012 /CNW/ - Canadian oil and gas companies are mirroring global trends and transacting with cautious optimism despite favourable deal-making conditions, says Ernst & Young.
According to the sixth Ernst & Young Global Capital Confidence Barometer, the majority of oil and gas executives view the global economy as improving (more than double the 22% in October 2011), 87% view credit availability as stable or improving and 91% plan to maintain or increase their current workforce.
Not only that, survey respondents believe the number of deal opportunities is increasing, and the quality of the potential targets continue to improve. They also say that the likelihood of closing deals is greater than it was six months ago.
"Despite increasing optimism, higher oil prices, access to lower-cost capital and a more favourable deal environment, oil and gas executives are still cautious when it comes to M&A," says Barry Munro, leader of Ernst & Young's Canadian oil and gas practice. "Just 31% of oil and gas executives expect to pursue an acquisition in the next 12 months, down from 48% in October 2011 and the lowest figure since 2009."
Low confidence in the broader business environment, uncertain commodity prices and disproportionately low share prices have 27% of businesses looking to sell assets (particularly if they're gas-weighted) — a clear sign that companies regard optimization and preservation of their capital, portfolio management and a renewed focus on their core business as priorities. Organic growth is also easier to manage and a safer proposition for many, particularly when the pricing gap remains an issue and there continues to be uncertainty around the near-term direction of commodity prices.
But for many oil and gas companies, growth continues to be of critical importance. In fact, 56% of survey respondents cited growth as their primary focus rather than maintaining stability or just surviving.
And with oil currently hovering around US$100 per barrel, and Canadian natural gas prices at their lowest levels in more than 10 years, many companies will want to transact and others may be forced to, according to Munro, who says we've already seen distressed gas plays and increased foreign partnering.
"Canadian companies that are ready to do deals have become more sophisticated in their approach," says Munro. "They're seeking out deals supported by a longer-term vision, a well-thought-out partnering arrangement, a robust and fulsome due diligence process and seamless integration plan to make the most of transaction opportunities."
About the survey
Ernst & Young's Global Capital Confidence Barometer is a regular survey of senior executives from large companies around the world, conducted by the Economist Intelligence Unit (EIU). Our panel comprises select Ernst & Young clients and contacts, and regular EIU contributors. This snapshot of our findings gauges corporate confidence in the economic outlook, and it identifies boardroom trends and practices in the way companies manage their capital agenda.
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