The consequence of the falling oil price is beginning to emerge as oil companies are looking to cut production cost.
There are indications that mergers and acquisitions may become major consideration for players in the sector in 2015.
Already, a British oil and gas group with operations in Africa and Iraq, Afren, has received what it called a “highly preliminary approach” from Nigeria’s Seplat Petroleum Development Company Plc after an oil price rout set the stage for takeover activities in the sector.
Afren’s shares had risen as much as 10.5 per cent following news of the approach, and after a run-up that forced it to reveal Seplat’s interest. Financial Times reports that Afren Plc noted the recent movement in Afren’s share price and confirmed that it has received a highly preliminary approach from Seplat regarding a possible combination with Afren.
The price of the global oil marker, Brent crude, has fallen more than 40 per cent since mid-June due to lack of global demand and a surge in production of the United States (US) shale oil. This trend, according to experts, makes it attractive for oil companies to try to merge in order to cut costs.
According to industry sources, one response to such sustained financial pressure will be an upsurge in deal making, as in the merger boom of 1998-2000 that brought BP together with Amoco and Arco, Exxon with Mobil, and Chevron with Texaco.
Mergers and acquisitions, experts say, will make it possible to cut out duplication of overheads, and to improve the performance of under-managed assets. “The nascent homegrown oil industry in Nigeria has grown exponentially over the last five years, buying assets from the oil super-majors,” said the FT report.
“Big Oil wants to reduce its onshore presence in Nigeria, in the face of theft and sabotage and long delays to a government bill setting out new terms for operators.”
Royal Dutch Shell, Total of France, Eni of Italy and Chevron and ConocoPhillips of the US are among the companies that have sold about $5bn worth of oil fields and pipelines since 2008-09. Nigerian oil companies such as Oando and Shoreline Natural Resources, as well as Seplat and Afren, had been among the buyers, supported with debt from local and international banks.
Seplat is sitting on a pile of cash after it raised $500m on its flotation in London and Lagos last April and failed to buy any further assets in Nigeria. Local bankers had been expecting the company to lead the consolidation effort in the Nigerian industry.