Oil and gas M&A activity expected to increase
BDO’s 2013 Energy Outlook Survey suggests undervalued oil and gas assets will help push more companies to consider a merger or acquisition.
CHICAGO—Mergers and acquisitions in the U.S. oil and gas industry are expected to rise in 2013, according to a survey of U.S. oil and gas chief financial officers (CFOs).
The study by BDO USA, LLP said 53 per cent of CFOs expect energy firms to seek to strengthen their financial position and leverage increased prices and an anticipated abundance in supply and demand for oil and gas.
“Despite a weak national economy and some uncertainty over the ability to access capital and credit, overall market conditions have created an environment conducive to M&A activity,” said Charles Dewhurst, practice leader in the Natural Resources industry group at BDO.
“The energy sector has seen a lot of consolidation in 2011 and 2012. Companies anticipate this trend will carry over to 2013, buoyed by several factors, including the continued exploration and development of nonconventional resources.”
Revenue and profitability are the top drivers for M&A in today’s market, according to BDO’s 2013 Energy Outlook Survey, with 36 per cent of CFOs noting the need for companies to be cash-positive. And, in an indication the sector has indeed been negatively impacted by the ongoing recession, 29 per cent suggest undervalued oil and gas assets will help push more companies to consider a merger or acquisition.
As important as M&A activity has become, just three per cent of CFOs see the trend as being the primary driver of growth in the industry in 2013 and just over a quarter of CFOs (26 per cent ) cite pursuing M&A as a top option for increasing shareholder value.
Additional findings from the BDO 2013 Energy Outlook Survey include:
Access to capital and credit in limbo: CFOs are reigning in their expectations of access to capital in the coming year, with a 19 per cent decrease in the number of CFOs expressing positivity since 2011.
Executive compensation programs increasingly tied to performance: 58 per cent of CFOs have amended executive compensation programs in 2012 to improve the pay-performance connection.
CFOs are confident they will continue to profit from their companies’ successes: 89 per cent expect their own compensation to remain about the same or improve in 2013.
Hiring and bonuses remain strong: 66 per cent see employment in the oil and gas sector staying relatively consistent with 2012. However, 25 per cent expect an uptick in the number of personnel employed by their company in the coming year, while only eight per cent predict a decline.