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The year in review: Relative stability in 2017

by Guest on Jan 3, 2018

Colin Chapman is the president of Euro Petroleum Consultants.
Colin Chapman is the president of Euro Petroleum Consultants.
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Another year is coming to an end – a year of uncertainty that has, nonetheless, brought relative stability to the oil and gas sector, compared to previous years. The global crisis seems to have finally passed its peak, and the sector has even seen some revival in business activity worldwide.

Record number of M&A deals

This year has seen a record number of merger and acquisition (M&A) deals, for the fourth consecutive period of growth – approximately 50% more in monetary terms than seen in 2016. There is a general opinion that during difficult times companies tend to combine their efforts in order to ensure market survival.

Smaller companies faced numerous issues and were acquired by larger ones. However, these larger firms also struggled to stabilise their budgets and regain market position after losses caused by the drop in oil price. 

Upstream was leading the way, while downstream deals developed almost at the same pace as in previous years, along with a significant cut in midstream asset activities. This trend was mostly seen among service and technology companies that were looking to diversify their business, improve their industry influence, and add new customers and expertise to their portfolio. One major example was DowDuPont, where a successful merger of equals between the Dow Chemical Company (Dow) and EI du Pont de Nemours & Company (DuPont), was completed effective of August 31. The combined entity will operate as a holding company under the name DowDuPont, with three divisions – agriculture, materials science, and specialty products.

Another example was that of Baker Hughes and General Electric, which announced on 3 July that the transaction combining GE’s oil and gas business with Baker Hughes was complete. The new company, Baker Hughes, a GE Company (BHGE), brings together equipment, services, and digital solutions across the entire spectrum of oil and gas development. BHGE’s focus will be to acquire for its customers solutions for transporting and refining hydrocarbons more efficiently, productively, and safely, with a smaller environmental footprint, and at a lower cost per barrel.  

In addition, Wood Group and Amec Foster Wheeler became WOOD following the recent merger of Amec and Foster Wheeler, and bringing together three large EPC-type companies focusing on upstream, midstream, and downstream, to deliver services to support customers across the complete lifecycle of their assets, from concept to decommissioning, and across a range of energy, process, and utility markets. 

The oil-price situation in 2017

This year also saw oil prices decrease from levels around US $55 per barrel for Brent crude to around US $45 per barrel in July. Since then, prices have risen to values around US $60 per barrel, due mainly to decisions taken on the future of supply by many government and industry majors. 

After a period of stagnation and profit collapse, which affected even large multinationals like ExxonMobil, market players realised that extra-low crude prices could negatively affect not only oil-dominant economies like the Middle East countries, the US, and Russia, but also key consumers like China, Latin America, and the developing countries of Asia Pacific.

Last month, a large delegation from Saudi Arabia travelled to Moscow for in-depth discussions on the many important issues affecting the oil and energy sectors. Russia and Saudi Arabia, along with the US, are among the leading global producers, and these important discussions will help bring stability to the markets. Stability is important for the industry and helps support companies in planning future developments and investments. 

Project activity in 2017

Project activities in oil and gas in 2015 and 2016 were undermined by a lack of investment due to the re-evaluation of corporate strategies. This year, however, some projects resumed and new mega-projects were announced, including a number of cross-country pipeline projects, which are essential for further industry development. 

Another important point is that even though the shale boom is now less prominent than before, different companies have acquired shares in promising oil and gas fields in the US. The Permian and Marcellus basins also attracted a lot of attention this year, and contributed significantly to a surge in upstream asset deals. 

There has been heavy investment in Canadian oil sands exploration and production (E&P) projects, and major operating companies in the region, such as Shell and ConocoPhillips, surrendered their positions, partly to new players. 

In the downstream sector, many national oil companies (NOCs)focused on asset investment in target regions. Saudi Aramco, for instance, concluded two major transactions in the US and Malaysia, which respectively involved splitting the assets of Motiva, a joint venture (JV) with Shell; and a US $7bn deal to acquire a 50% stake in Petronas’s refinery and petrochemical integrated development (RAPID) project.


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