Oil & Gas UK Economic Report 2015

4.2 Mergers and Acquisitions

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As is often the case, the fall in oil price has led to speculation about an increase in mergers and acquisitions (M&A). After 18 months of little activity, there were signs that in the latter stages of 2014 the M&A market was becoming more liquid, when a flurry of smaller deals were followed by Repsol’s US$8.3 billion corporate takeover of Talisman 2 . The biggest deal of the price cycle occurred on 8 April 2015 when BG Group announced an agreement with Shell to sell its entire share capital for approximately £47 billion. Some industry commentators expected this to herald a summer of frantic M&A activity, but this has not materialised. Smaller companies that are typically more heavily financed by debt than equity have a greater reliance on short-term revenues to balance cash flows and, as such, are often considered more susceptible to takeovers in the wake of significant falls in oil price. This has been the case in previous downturns, although there has been little evidence of such deals thus far during 2015. The few corporate acquisitions over the first half of 2015 may indicate that companies have been able to respond swiftly to the lower price environment by reducing costs and improving efficiency, but there could still be an increase in M&A activity over the remainder of this year and into 2016. Furthermore, even if additional corporate deals fail to happen, individual assets on the UKCS are still likely to change hands. Many of the UKCS’ established players are seeking to divest their non-core assets and rationalise portfolios, while an increasing number of small private equity-backed businesses are looking to invest in UKCS assets to develop fresh portfolios and expand within the sector.

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2 See http://bit.ly/1VWE5GP

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ECONOMIC REPORT 2015