Transaction market stalled by a dramatic plunge in oil prices: EY report

Structural shift underway in oil and gas business

CALGARY, Feb. 26, 2015 /CNW/ - Since mid-2014, the transaction market in the oil and gas sector has been stalled by a dramatic plunge in oil prices, according to EY's 2014 Canadian oil and gas transactions review. With current prices and market conditions, EY says few new oil or gas projects globally appear to be economical, and the Canadian industry is not immune.

"A structural shift is underway in the oil and gas business," says Barry Munro, EY's Canadian Oil & Gas Leader. "The industry is transitioning from a 'resource scarcity' model to a 'resource abundance' model."

For the Canadian industry, three key implications result from this structural shift:

  • Costs matter. In a "resource abundance" world, future commodity prices will not preserve or rescue high-cost projects as the industry grapples with structural cost pressures. There will be winners and losers – those able to adapt and those who fail to adjust.
  • Globalization. The global nature of the industry means increased unconventional production is challenging old-market dynamics. Capital continues to flow to projects with little regard for borders, while players continue to evolve strategies and structures in ways to best address and succeed in the global energy marketplace.
  • Innovation. Innovation will continue to be critical to realizing the massive resource potential of the Canadian industry.

"Once the current market shock has worn off, we expect that 2015 will see a continuation of 2014's portfolio rationalization efforts," says Munro.

In Canada, EY expects transactions in 2015 to be driven by a variety of factors, including the need for incremental cash to fund other operations or shareholder requirements, to remove non-core assets to streamline operations and reduce costs, to continue repositioning the business and, increasingly, to address balance sheet necessities.

"Capital preservation will be a key theme in 2015," adds Munro. "We expect current market challenges to create unique opportunities for well-positioned and well-financed companies. Unlike during the financial crisis in 2008-09 when transaction activity effectively ceased, we believe transactions will accelerate through the later parts of 2015."

About EY
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY is proudly celebrating 150 years in Canada. For more information, please visit ey.com/ca. Follow us on Twitter @EYCanada.

EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

SOURCE EY (Ernst & Young)

For further information: Erika Bennett, erika.bennett@ca.ey.com, 403 206 5157; Julie Fournier, julie.fournier@ca.ey.com, 514 874 4308; Sasha Anopina, sasha.anopina@ca.ey.com, 416 943 2637

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