Editor's letter: M&A decoded - United we stand, divided we fall

Editor's letter: M&A decoded - United we stand, divided we fall
Indrajit Sen is the deputy editor of Oil & Gas Middle East and the co-editor of arabianoilandgas.com
Published: 13 September 2017 - 8:43 a.m.
By: Indrajit Sen

Competition can thrive in a business environment where conditions are conducive. When circumstances are as daunting as in present times, rivalry has to be replaced with synergies for the very sustenance of the industry.

Thus far, since stakeholders started feeling the discomfort of doing business with the onset of the downturn in early 2015, it was mostly players in the oilfield services and EPC domains that were compelled to consider mergers and acquisitions (M&A) as a way to remain competitive. 

Now it seems that E&P companies, who form the highest echelon of the oil and gas industry, too are now finding it wise to sustain themselves by collaborating – with two of the global majors recently throwing themselves into the rising tide of M&A. French energy giant Total last month announced it had signed a deal worth $7.45bn to acquire the oil and gas division of Danish business conglomerate Maersk. 

Total expects its acquisition of Maersk Oil, set to be completed in the first quarter of 2018, to strengthen its operations in the North Sea and raise its output to 3mn barrels per day by 2019. Total also hopes its biggest conquest, since it acquired Elf in 2000, to generate financial synergies of more than $400mn per year, in particular by combining assets in the North Sea, as well as in other key regions like MENA. It also said the acquisition would boost earnings and cash flow. 

While on one hand the landmark merger between Total and Maersk Oil can signal the start of many more such mega M&A transactions in the E&P sphere, collaborations between major players in the other domains continue unabated.

Jacobs Engineering Group Inc and CH2M Hill Companies Ltd, both American engineering firms that have and continue to perform EPC work for key regional oil and gas projects, also announced last month that they have entered into a definitive agreement under which Jacobs will acquire all of the outstanding shares of CH2M in a transaction worth circa $3.27bn.

Going by these two jumbo M&A deals in August 2017, it would be safe to assume that more such major consolidations are on the cards.

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