European Refining – Part II, M&A Market

There is no price low enough – or is there? How the M&A market for European refining was wiped out in a flash    

Introduction

While the European refining sector had been declining for years, the high margin environment and economic robustness of the 2004-2008 “golden age” gave the sector a new lease on life. A wave of M&A deals allowed international oil companies (“IOC”) and independent refiners to offload some of their assets. This allowed them to reshape their downstream portfolios while addressing the strategic needs of national oil companies (“NOC”). It also presented an opportunity to emerging players interested in acquiring European outlets for crude production and access to trade flows in the North West Europe and Mediterranean regions. However, this exuberant surge of M&A deals gave way to tears once the price environment declined and Europe was flooded with Russian, US and Middle East oil products.

Opportune LLP (“Opportune”), a leading international energy consulting firm, has explored the complex dynamics of the European market and the long-term outlook for the refining industry in Europe. In the second of a 3-article series, Opportune provides insight into M&A in the European context, addressing what might be for sale, the market of buyers, and potential opportunities.

Since 2008, a large number of European refineries have been considered for sale but there have been few suitable buyers with adequate financial backing to show interest. The obvious problem has been that these assets are unattractive to buyers.

The M&A market in Europe is currently distressed. Only when buyers’ demands are fully addressed in terms of valuations, contingent liabilities, workforce, and investment requirements will deals occur. Periods of improved margins will likely result in temporal openings of the bid/ask spread, with deals being postponed and executed in a depressed market environment. Given the many assets that are available, buyers with a clear vision of the type of refinery that will add value to their business model will be able to find exactly what they need. Click below to read the full article…

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