Deloitte: Equipment and services deal values drop in first half of 2012

Global merger and acquisition activity in the oil and gas services industry slowed during the first half of 2012 following a brisk yearend 2011 market, Deloitte Center for Energy Solutions said in its midyear M&A report, which analyzes announced transactions having values greater than $10 million.

Deloitte tracked 34 equipment and services transactions worth $7.6 billion through June 30 compared with 30 deals worth $19.4 billion for the same period last year.

“A number of deals took place right at the end of last year, but now we’re seeing a pullback in this segment,” said Jason Spann, a partner with Deloitte Tax LLP M&A Transaction Services. “With US rig count flat to down, many players are moving from gas to oil,” creating excess service capacity in some areas.

Jim Dillavou, a partner with Deloitte & Touche, suggested that rates for services also might be contributing to a pause in service-related M&A activity.

“Companies have been incredibly profitable in this sector, and rates are high,” said Dillavou. “Some buyers may feel that service company rates have peaked and might be waiting for them to come back down.”

He noted that many service-related transactions continue happening although these transactions are small compared with the major deals negotiated by larger services companies a few years ago.

“Companies continue to look at strategic acquisitions to fill out their service lines,” Dillavou said. “Larger companies are looking for companies that serve specific geographies or offer niche services.”

Jed Shreve, a Deloitte & Touche partner, expects US shale plays will continue to drive “a good bit of oil field services activity in the next couple of years.”

In an industry overview, Deloitte reported a total deal count of 231 transactions having a value of $106 billion during the first half of 2012 compared with 256 deals having a value of $108.6 billion for the first half of 2011.

Roger Ihne, Deloitte Consulting LLP principal, said world demand for oil and gas looks less robust than it did a year ago.

“Projections for crude oil demand growth have moderated, production has grown in North America, and Saudi Arabia has increased oil production in response to the Iran embargo. With an increase in supply and a decrease in demand growth, crude prices have come down.”

He remains bullish on M&A activity as long as crude oil prices remain above $80/bbl on the New York Mercantile Stock Exchange.

Contact Paula Dittrick at paulad@ogjonline.com

 

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