13 October 2012
WITH more oil finds and disruptive technologies coming onstream, the level of merger and acquisition (M&A) activity in the oil and gas sector is set to increase.
It’s going to be a boon for oil and gas service providers as the abundance of opportunities propel these companies to expand into new regions and grow bigger through acquisitions, say oil and gas experts from Ernst & Young.
Some key game changers include shale oil potentially becoming very big in China and technology making it progressively easier to get more certainty in striking oil. Renewables will likely not pose a huge threat to conventional hydrocarbons, at least for the next few decades.
“It used to be a 1-in-8 chance of striking oil. Now with technology, it has become 1 in 2, and 1 in 3 chance,” says Ernst & Young LLP Partner, Global Oil & Gas, Transaction Advisory Services Andy Brogan.
Brogan sees expenditure of about US$15 trillion (RM46.5 trillion) for the oil and gas industry over the next 20 years, which makes it about US$750bil (RM2.3 trillion) per annum.
“To best serve their exploration and production (E&P) clients, oilfield services companies must quickly and efficiently adapt to the evolving industry landscape.
Technology, global reach and local delivery capability are key, and the most effective paths to it are through internal research and development as well as via M&A,” says Ernst & Young.
And Malaysia will see its fair share of that activity. Furthermore, with the tax incentives announced during Budget 2013, this will see more foreign direct investments coming into the country, said Bernard Yap, Tax Partner at Ernst & Young, Malaysia.
In the recent Budget, the Prime Minister announced a 100% income tax exemption for a period of 10 years, exemption of withholding tax and exemption of stamp duty to be given to public-private partnership projects in the development of oil and gas industry
“Opportunities will especially be abundant in southern Malaysia. All these will supplement Singapore’s needs. Over the next 5 to 10 years, you will see new players coming in, especially when the Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang, Johor becomes more stable. Eventually, Malaysia will complement Singapore’s trading hub. It will be more of a partnership route,” says Yap.
Yap especially sees potential in terminal links and bunkering services. This is mainly because of the availability of land in Malaysia and expensive cost of doing so in Singapore.The RM60bil Rapid project by Petronas is to date the largest liquid-based greenfield downstream project in Malaysia. When completed, it will have a 300,000 barrels per day refinery to supply the petrochemical complex. It will also produce a variety of refined petroleum products.
“With the flurry of activity in the industry, you will see more oil and gas special purpose acquisition companies being formed,” says Yap.
Ernst & Young Asia Pacific Oil and Gas Leader Partner, Transaction Advisory Services Sanjeev Gupta says that with the right technology, marginal fields will no longer become marginal fields.
M&A to dominate
The vast potential in various global offshore exploration projects will be at the centre of many acquisitions. Deepwater areas in the eastern Mediterranean, Brazil and Africa, and in offshore basins in Australia, have moved up the priority ladder.
High-quality multi-client seismic data sets, multi-client geophysical programmes, and other new high-tech data-driven services are being developed, acquired and licensed with offshore basins in mind.
As oil and gas service support companies become larger, they will grow through the acquisition of expertise. With technology fast evolving, a service provider will need to own both assets and services to be able to provide the full scale of works.
“The demand for oil moving forward will be very strong. This will drive people to want to invest in the industry and enter new markets, for example in offshore Brazil, Australia, the Middle East and North America. There are going to be very large gas projects. In Brazil, it will mostly be deepwater while in the United States, it will be the development of shale oil and gas,” says Brogan. He adds that the world is running out of cheap oil, so it will be more costly to produce oil from other means, for example shale gas and deepwater exploration.
“There is cheap oil, but it is in the Middle East. There are limitations to the oil there, partially due to the control of OPEC and the geographical instability,” he explains.
Brogan says that with the financial crisis in 2008, oil demand from the United States and Europe for oil and gas peaked in 2008.
“Renewables will not pose a threat to oil and gas, not at least for the next few decades. Renewables will be competitive at a certain price. However, so far, they struggle to compete as there are still few alternatives for transport oil. If there is a technological change, then yes maybe,” says Brogan.
He adds that it is more possible to find an alternative for gas, for example using renewables such as wind, although it is still unstable. For the moment, it will still be very hard to scale for the foreseable future, Brogan says.
“Governments are trying to make them compatible through carbon credits and subsidies. However, with the economic crisis, most governments lack money. So there is no appetite for renewables. If gas prices remain compatible, it will be difficult for renewables to compete,” says Brogan.
Presently, renewables make up 7% of the energy mix. Brogan says that this will likely double over the next two decades.
Brogan sees lots of potential in shale gas. China appears to have vast potential reserves. He sees investors putting in money either in deepwater exploration or shale gas.
Ernst & Young points out that onshore unconventional projects have risen to prominence in North America. Oilfield services companies have made extracting shale gas possible with advanced techniques, but the complexity of drilling and hydraulic fracturing varies with each project, heightening the importance and competitive focus of oilfield services technology.
“The current depressed price of natural gas in the United States is affecting oilfield companies as upstream clients shift spending. But in North America, most of the spending has shifted to tight oil and natural gas liquids, rather than being lost altogether. In addition, large reserves in China, Poland and Australia (and India hoping to start exploration in 2013) offer global opportunities,” says Ernst & Young.
Offshore exploration in the developing basins is already underway, with the eastern Mediterranean, deepwater Brazil, deepwater Africa and offshore Australia as primary targets for E&Ps.
“There is potential in the Artic, but it is too cold and the weather too harsh. Recently, the Russian Ministry licensed Western oil and gas companies to explore it. It looks prospective, but it will take a very long time. And there is also high cost involved,” says Brogan.
He says that the current level of technology in the industry is tremendously different from what it was 20 years ago. Shale for instance, wasn’t conventional five years ago.
[Source]
No comments:
Post a Comment