Opportune Quarterly Review: EMEA Q2 2017

The 5 Themes that are Shaping the Industry

This is the first edition of the Opportune Quarterly Review for EMEA. We aim to provide a periodic review of the trends and companies that are shaping the EMEA Oil & Gas middle market.

Methodology of the Review

The analysis outlines key industry trends grouped in 5 themes:

  • Mergers & Acquisitions and Portfolio Optimization
  • Production Outlook
  • Capital Spending and Cost Control
  • Development of the Gas Market and LNG
  • Capital Markets and Financing

The identification of the trends is based upon the review of corporate news of IOCs, EMEA E&P independents and European refiners.

In addition, we monitor the EMEA upstream and downstream sectors with a focus on:

  • North Sea and Africa upstream M&A activity: buyers, sellers and valuation metrics
  • Benchmarking, valuation and recent developments of listed small-mid size E&P independents with assets in the North Sea and Africa
  • Benchmarking, valuation and recent developments of listed European refiners

Mergers & Acquisitions and Portfolio Optimization

  • Majors are still keen to conserve cash and divest non-core, mature and immaterial assets
  • Private Equity firms confirmed their appetite for large scale M&A and bolt-on acquisitions (in particular in the North Sea) that are implementing through innovative deal structures
    • Sellers are retaining decommissioning liabilities (in the North Sea) to divest to smaller players
    • Earn-out mechanisms are considered with potential future payments related to upsides in oil price and production
  • Several AIM listed companies need to reboot their equity story: M&A is becoming a tool for survival, key to creating critical mass, reduce SG&A and pre-empt hostile actions from activist investors
  • Emerging players (e.g. DCC Energy, Intervias) and some downstream groups (e.g. MOL) are buying fuel retail networks from majors to create stable consumer businesses that are benefiting from higher valuations (10-11x EV / EBITDA vs. 5-6x of integrated oils)

Production Outlook

  • Companies are not pursuing production growth at any cost. A mindset shift towards shorter-cycle projects is supporting a moderate production growth
  • Hotspots: North Sea (M&A), offshore Egypt, Kazakhstan (development)

Capital Spending and Cost Control

  • In Q2 2017, companies started benefiting from disciplined capital spending and cost control initiatives: a leaner industry is emerging
  • Scope for further reduction in G&A and operating costs to be driven by standardization and new technologies

Development of the Gas Market and LNG Trends

  • Rising European import dependency: imports and LNG are compensating for declining indigenous production
  • LNG oversupply is driving buyers to increase their involvement in the value chain and to ask for contractual flexibility on terms and destinations. The LNG market is maturing with a growing role of intermediary players and a growing importance of hub market prices

Capital Markets and Financing

  • Still limited debt financing available to the industry outside OECD countries. This is significantly penalizing project development in Africa while acquisition financing is available in the North Sea
  • Equity capital markets are re-opening to follow-on offers and IPO of solid equity story built around producing assets in low-risk jurisdictions and unique development projects (e.g. Hurricane Energy)

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