A “lower for longer” expectation for future oil prices, coupled with battered corporate balance sheets and drained treasuries, has taken the air out of the merger and acquisition activity among oil and gas companies that might otherwise be expected in a sectoral downturn, Downstream Today reports.
Citing research by Deloitte LLP, DT’s Deon Daugherty writes that mergers and acquisition (M&A) deals in the first half of 2016 were their lowest in half a decade: just 198 deals, worth US$85.66 billion—compared to 385 deals worth US$127.37 billion in the first half of 2012.
The sluggish activity, DT says, reflects a deeper pessimism about the industry’s long-term prospects. “Essentially, the second year of the commodity price downturn has found lenders less willing to fund deals.”
Earlier this year, the same firm predicted that as many as one-third of oil producers were unlikely to survive 2016. Normally, that kind of prognosis would present more M&A opportunities. If financiers continue to shun deals, it may signal a significant loss of confidence in the sector’s future.