Standard & Poor’s Rating Services said the oil and gas industry’s credit ratings appear poised to benefit from expected high merger and acquisition activity in the US this year.
“Much of the US activity in this sector will occur among small and midsize players eager to find new reserves or to sell those they possess to larger, integrated multinationals,” said credit analyst David Wood.
He did not forecast a specific number of transactions or the possible dollar value of M&A activity.
“In Europe, by contrast, activity is expected to be low, as most oil and gas groups opt to return capital to shareholders,” Wood said. With natural gas and oil prices at or near record highs, most deals will be financed with stock and cash, he said.
Mergers and acquisitions can improve credit-worthiness when smaller companies spin off unwanted properties and when acquirers with the necessary expertise make prudent purchases of reserves, S&P said.
S&P’s affirmed Chevron Corp.’s credit rating in its $18 billion bid for Unocal Corp. The agency placed Unocal on its monitoring list with positive implications (OGJ Online, Apr. 4, 2005).
“Still, the potential exists for a slightly negative bias in credit quality if deals are undertaken in high-risk areas or are excessively large, especially in light of high current and asset market values,” Wood said. ✦