Investor concern will drive mid-cap oil and gas consolidation

KPMG is predicting major consolidation amongst mid-cap oil and gas companies, resulting from low share prices and investors’ concerns over market valuations.

Anthony Lobo, UK head of oil and gas at KPMG said, “Q1 upstream MA activity totalled $39bn, a record high and up 75% on Q1 2013. Amongst this, we are currently seeing a significant amount of activity amongst mid-cap oil and gas companies, who have been under pressure from shareholders to improve market valuations and drive shareholder value.

“Investors have been patient in recent years, however, as long-term shareholder value rises high on the agenda, debt becomes more available and deal capacity continues to increase, transactions are being viewed as an option for mid-caps in fear of shareholder unrest.

“Corporate pressure is already triggering changes in executive teams and has raised the need for management to review their portfolios. Given the challenges in identifying and executing the right deal, these transactions may not always be value generating, however in today’s market, attack may be considered the best form of defence, and MA activity at least demonstrates to shareholders that management have a strategy and are being proactive.

“With no sign of the gap between market and asset valuations closing, the pressure on management teams is set to remain, and we therefore expect to see further consolidation and activity amongst the mid-caps in future.”