Could Shell's purchase of BG Group signal a wave of M&A activity in oil sector?

Thu, 09 Apr 2015 | BUSINESS NEWS

It's an industry that routinely operates around billion-dollar profit margins and Shell's purchase of BG Group yesterday was no exception – the deal went through for £47 billion.

But, as with any industry, changes at the top are far from isolated and it's likely that companies involved in the oil and gas industries at all levels are going to see some interesting developments in the coming months, with some analysts suggesting that a "wave of M&A activity" is on the cards.

Not only have two massive conglomerates merged, but oil prices continue to run at near-historical lows and geographical changes in sources are also coming into play; of particular interest has been this week's discovery of “substantial” oil reserves in England near Gatwick by exploration firm UK Oil & Gas Investments. These are all big changes and they're contributing to shifts within the industry.

Analysts have suggested that while in recent months buyers and sellers were unable to find common ground in terms of price to allow any deals to go through, Shell and BG's merger suggests that this is set to change as market pressures prompt companies to seek consolidation and reassurance in size.

The hub of the matter is, in an increasingly competitive market, bigger is once again better and companies are actively seeking mergers that will increase their size and, crucially, their growth potential.

Aneek Haq, head of oil research at Exane BNP Paribas, confirmed to BD Live: “The deal will put pressure on oil majors to act.” Indeed, Exonn is already open about its own ambitions to find the right acquisition.

Meanwhile, Jean-Luc Romain, an analyst with CM-CIC Securities in Paris, added that Shell's activity could well “signal the start of a wave of M&A activity”. How long before this wave becomes apparent among the SME level of the industry? And just how will the onshore discovery of oil near Gatwick influence the oil and gas industry and its supporting businesses? It's certainly one to watch.

Read how business buyers can profit from low oil prices.

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