2017 may be the year things start to look up in the oil and gas sector. Audrey Leon speaks with Robin Mann of Deloitte, to get a clearer picture on the activity front.
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OE: What kind of year is 2017 shaping up to be for M&A activity?
We expect 2017 to be the real start of the rebound for the oil and gas industry as prices will show signs of positive life (not dramatic but steady slow upward movement); however, this will dominantly be on the onshore and in specific areas of the country. The offshore industry will take a little more time to show an increase in drilling activity, but the bleeding should show signs of abating and it is expected that there will be a few transactions occurring as companies position themselves for the future.
The offshore is probably still at least a year away from the same optimism that we will more than likely see on the onshore, but this will depend on what part of the world a company is in. For the Gulf of Mexico (GoM), it is anticipated that things will remain somewhat stagnant in the shallow water, but in the GoM deepwater and for other basins such as Asia Pacific and the Middle East, activity and transactions are expected to show positive signs of life.
OE: 2016 saw a lot of high-profile deal activity. How do you expect the offshore industry to evolve and remain competitive? Can you please provide insight on how the market is changing for OEMs specifically?
Companies will continue to pick and choose their areas of activity into 2017, with deepwater being the areas of the most interest – mainly due to the size of the prize and the fact that these are longer term projects that are not as reliant on current daily prices; they have to have a longer term price outlook.
For equipment manufacturers and suppliers, 2017 is anticipated to show a slow start with increases in activity toward the latter half of the year. We expect that companies will continue to hawkishly watch their spending on new materials and services early on as prices start to firm up, but will need additional materials as they become more active later in the year. The underlying factor for all projects – and the offshore activity is no exception – is whether the recent cutback in production by OPEC (and related positive price increase) will hold. The industry has become much more skeptical that a positive increase in prices, which we have recently seen, may not be as sustainable as it was in the past due to the increased number of opportunities that are present around the world, and specifically in North America around unconventional plays.
OE: What do you expect to see in 2017 and beyond for the global offshore market? Do you anticipate more consolidation? What regions do you expect to have the most activity?
As mentioned, the areas where we anticipate an increase in activity is in the Asia Pacific and Middle Eastern regions for the offshore. Saudi Arabia and UAE continue to be bullish for the offshore; however, the recent cuts in global oil production may have an effect on this activity in the short-term, but longer term activity should continue to show positive signs of an increase. Through the downturn, offshore Asia Pacific has remained relatively steady and it is anticipated that into 2017 this activity will show an increase. One area where a government is trying to spur activity is in India, where they have revised the price formula for offshore production in underdeveloped fields – with deepwater getting the largest benefit – to increase interest and activity. On the consolidation front, we would anticipate there to be a higher level of activity due to buyers and sellers finally closing the gap on pricing expectations. We do not see this as a flood of activity, but it will definitely show more life than we have seen over the past couple of years – more on the number of deals to consolidate positions and potentially help with operational expenditures in a region versus the magnitude of the total global transactions.
Robin Mann is Oil & Gas Resource Evaluation & Advisory Leader for Deloitte LLP. Mann is a professional geologist with more than 35 years of experience in geological and management positions. He is a partner in Deloitte’s Resource Evaluation and Advisory practice where he leads the global practice’s technical team and coordinates the firm’s Energy and Resources technical capabilities in oil and gas through the Americas.