June 13, 2017
The energy sector has been on the rise and, along with it, energy mergers and acquisitions. Mergermarket’s newly released report “Surging ahead: Energy M&A in 2017” discusses the possibilities of the booming sector with four experts who comment on oil and gas M&A and alternative energy M&A. One of the experts Mergermarket interviewed was partner Scott Cochlan, who is co-head of the firm’s Capital Markets practice and a seasoned oil and gas lawyer. Below are portions of the interview with Mergermarket in which Cochlan discusses the current and projected state of oil and gas M&A.
Mergermarket: The Permian Basin has seen a large amount of M&A activity lately. What other regions are ripe for dealmaking at the moment? Can bargains be had in regions with less buzz around them?
S. Cochlan: […] In Canada there are deals to be had in acquiring “tuck-in” assets or purchasing a small or micro-cap company where the acquirer believes it can cut costs and make money on the efficiencies. In terms of whether there are any preferred dealmaking regions in Canada, the Montney formation in northeast British Columbia and northwest Alberta and the Duvernay formation in Alberta (particularly the east oil zone) have most recently been attracting attention and money. Another area that you might see attracting investors is Mexico. The denationalization of Mexico’s oil and gas sector has provided the first opportunity for foreign investors to enter this market. Attractive features there include low production costs, previously undeveloped fields, existing infrastructure and a regulatory framework that is favorable for foreign investors.
Mergermarket: Private equity buyers have taken a greater interest in energy assets over the last three years […]. Are there any niches within the sector that PE acquirers have focused on in particular? And how do financial buyers - which typically have a set exit timeline - manage the risks that come with commodity price volatility?
S. Cochlan: From the start of 2017, we’ve seen an increased number of IPOs […]. We believe that energy companies will likely continue to access the IPO market over the next 6-12 months - although this may be tempered by mixed success of other IPOs and dependent on commodity prices and demand. I think the recent lack of profitability for energy companies, combined with the continued weakness in oil prices and low projected growth in global oil demand over the next few years, has somewhat dampened investor enthusiasm for energy IPOs. Uncertainty has resulted in delays and significantly reduced offering sizes, and a number of recent IPOs on the NYSE have been priced below the low end of the initial filing price range. So, while we expect and hope there will be continued IPO activity over the next 6-12 months, overall what we have seen during the past number of years has been generally a diminishing IPO market.
To read the full report, click here.
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