Buyouts back on the table in the oil industry

Takeover activity has returned to the oil exploration sector with a vengeance with deals totalling almost
‘The real feeling is that in the short to medium term, the oil price could plunge,’ said one analyst.

‘Companies are looking at the high cost of production and doing deals to cut costs.

‘But over the longer term, the oil price will go up again and there will be a shortage of oil, particularly in the increasing population in the third world. These are smart people doing deals to meet long term demands.’

The analyst also points out that there have been far too many companies floated in the last five years.

There is another reason-for consolidation – one put forward by Camilla Gore, a spokesman for Venture Production, currently fighting hard for its independence.

She points out that European utilities (including Centrica) have been acquiring North Sea gas assets in order to secure their lines of supply against the background of volatility in the market, particularly Russia.

But what lies ahead for the rest of the sector?

Whether you believe peak oil (the moment when oil extraction peaks and begins to decline towards zero) is imminent or not, the sector is long overdue further consolidation.

That’s because too many small oil companies have come to the market in the past five years, according to Mark Bloomfield, analyst Citi.

‘Financial distress among the companies building new jack-up rigs on speculation may give the industry leaders an opportunity to buy high quality assets at prices far below replacement cost,’ he asserts.

But not many analysts buy the peak oil argument. There are new fields coming on stream across the planet. The Canadian tar sands, only last year seen as the final hope of a dwindling supply, are languishing unloved as other options begin to look more attractive.

Daily Mail