A recent U.S. survey by financial services firm KPMG LLP revealed that many oil and natural gas executives expect mergers and acquisitions (M&A) to move steadily this year, the firm said March 31.
Companies’ efforts to consolidate core businesses will drive most of the year’s M&A activity, said 56% of survey respondents. They added that that M&A will also be driven by new technologies, geographic expansion, product and service growth and customer growth.
Of the survey's respondents, 56% said their companies would likely initiate an acquisition this year, while 39% said their companies would likely initiate a divestiture.
"Companies continue to rebalance their asset exposure, concentrating development resources in liquid rich plays like the Eagle Ford and the Bakken and areas with adequate midstream infrastructure, logistics and market access to support near-term profitability and growth," said Tony Bohnert, KPMG's energy sector lead partner for transactions and restructuring.
He added, "We're also seeing a wave of deepwater M&A activity in the Gulf of Mexico as companies look to boost production as fields mature and further expand geographic and geologic diversity."
Overall, respondents said that the U.S. would have the highest level of M&A activity in 2014. Western Europe was predicted to have the next-highest level, while China was predicted to have the third-highest level, KPMG LLP said.
"The perceived safety of the United States, and North America more broadly, continues to attract investment dollars from both U.S. and global companies looking for predictable growth in today's volatile economic environment," said Bohnert.
He added, "However, as capital continues to flow into the North American market, it is increasingly being allocated to the exploration and development of existing holdings, partly at the expense of M&A activity. We're also starting to see a drop-off in joint venture activity from foreign investors as national oil companies (NOCs) have quickly advanced their knowledge about how to apply North American fracing techniques and technologies."
Survey respondents said the factors that could adversely affect deal activity included the regulatory environment, buyer-seller valuation disparities, volatile energy prices and an inability to forecast future performance, KPMG LLP said.
“There will be very few megadeals in 2014,” according to the survey results—middle-market deals will dominate, KPMG said. Deal activity’s respective value will be less than $250 million, according to 56% of respondents. Another 23% predicted deal activity’s value to stand between $250 million and $499 million, while another 11% said it will stand between $500 million and $999 million, KPMG LLP said.
Amsterdam-based KPMG has offices worldwide.