Oil & Gas UK Economic Report 2015

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ECONOMIC REPORT 2015 21
4.2 Mergers and Acquisitions
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 Talisman2. 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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