LONDON Jan 11 The climate is right for a repeat
of the oil company takeover bonanza that began when Britain's BP
pounced on United States-based Amoco in 1998, according
to a research note by analysts at Bernstein.
The Amoco takeover was followed by a number of giant merger
deals at the turn of the century, including Exxon's
combination with Mobil, Chevron's takeover of Texaco and
Total's absorption of Fina and Elf.
Analyst Neil Beveridge and his team argue that the wave was
driven by stable but declining oil prices, underperformance
against other sectors, the potential for cost cuts and the
competitive threat from national oil companies. It ended as
rising commodity prices delivered improved returns across the
industry from 2002 to 2008.
Last year, he notes, M&A transaction value topped $250
billion for the first time since that bumper year in 1998, up
from an average of $150 billion a year since 2005.
"Clearly something is starting to change in the industry,"
he says in the note. "Could this increase in activity mark the
start of a new super-cycle in global oil and gas M&A?"
Some of the same 1998 factors are back in place, he argues,
including flattening oil prices and underperformance of oil
relative to other sectors. One new factor that could lead to a
wave of M&A is the arrival on the scene of Asian companies that
are "increasingly aggressive in their desire to acquire".
Another factor is that the average enterprise value of top
companies per barrel of reserves has risen above the cost of
replacing those reserves. "The relative attractiveness of buying
rather than replacing reserves is now higher than it has been in
the past two decades," the note said.
But Beveridge warns that the "big is beautiful" mantra of 15
years ago may not apply in M&A deals this time.
He notes the successful break-up of Conoco from its
refining arm Phillips 66 as an example and says that
Chinese state firm CNOOC's bid for Canada's Nexen
is unlikely to be repeated in type and scale, given
growing resource nationalism in countries such as Australia and