ey oil pressure: potential for consolidation in the ...file/ey-oil... · offshore drillers...

Click here to load reader

Post on 05-May-2018

213 views

Category:

Documents

1 download

Embed Size (px)

TRANSCRIPT

  • Oil pressurePotential for consolidation in the oilfield services sector

  • 1 Oil pressure

  • 2Oil pressure

    There are many factors putting pressure on oil price

    Geopolitical changes and political unrest

    Restrictive legislation and sanctions

    DemandChinese growth narrative

    Central bank decisions

    OPEC decisions

    Additional producer countries

    Over productionReserves and spare capacity

    Significant weather events and disasters i.e. hurricanes and oil spills

    Changing cost metrics

    Additional resources i.e. American shale and deep water

    Market sentiment

    Dollar FX rates

    Oilfield services companies are responding by cutting costs, however more fundamental change is required to protect the sectors future.

    Whilst the oilfield services sector has benefitted in recent years through strong oil prices, companies are now experiencing major change and must address the consolidation opportunities this presents.

    There will continue to be multiple variable factors that contribute to the volatility of oil prices and it is almost impossible to identify the new normal. Oilfield services companies are under pressure as a result of the price impact on their upstream oil company customers.

  • 3 Oil pressure

    Global capex is expected to drop by at least $220bn in 2015/16, with some EMEIA countries amongst the worst affected

    Whilst exploration and production (E&P) opex spend has declined less, the global forecast for capex investment has declined markedly in the light of lower oil prices. When analysing country-specific data, it is apparent that changes in investment are geographically dependent.

    Change in opex (FY15 to FY16)

    Change in capex (FY15 to FY16)

    % Change

    Australia

    United Kingdom

    United Arab Emirates

    Norway

    Azerbaijan

    China

    Iraq

    Brazil

    United States

    0

    Angola

    2020 4040 6060

    Source: Wood Mackenzie, EY analysis

    Oilfield services companies need to position themselves to take advantage of the opportunities available and build optionality into their business model to be best placed for future market changes.

    Change in forecast capex and opex between FY15 and FY16

    The oilfield services industry is seeing the impact of macro-economic pressures and changing customer behaviour presenting both opportunities as well as challenges.

    Significant price reductions demanded by customers

    $220bn of capital investment cut globally in 2015/16 but some areas forecast to grow

    Rig count reduction notably in US and Canada but more stable in Middle East and APAC

    Weak order intake outlook and decreasing backlog across the sector

    Stretched balance sheets and reduced share prices in asset heavy companies

  • Generally share prices have fallen across the oilfield services sector and for some the impact has been significant. A key consideration should be transactions that deliver value through mergers, acquisitions, joint ventures or divestments.

    4Oil pressure

    552 Engineering & construction

    companies

    Combined revenue: 8.6bn

    A fragmented sector with over 1500 companies, many with limited market share: consolidation is inevitable

    UK market structure, by sub-sector

    20

    40

    60

    80

    100

    120

    140

    Sep 13 Mar 14 Sep 14 Mar 15 Sep 15

    Subs

    ecto

    r in

    dex

    valu

    e (r

    ebas

    ed =

    100

    )

    E&C 34.8% Marine and subsea 48.6%

    Offshore support and services 68.3%

    Reservoirs 76.4% Well services & drilling 55.1%

    13%

    41%

    18%

    41%

    66%

    24%

    37%

    46%

    46%

    69%

    80%

    70%

    60%

    50%

    40%

    30%

    20%

    10% 0%

    E&C

    Well services

    Reservoirs

    Marine and subsea

    Offshore support and services

    % change Sep 201315% change Sep 201415

    Change in market capitalisation Relative change in share price

    Top 5 revenue earners

    vs. rest of segment

    Marine & subsea Offshore support & services

    Well services & drilling

    Reservoirs

    Source: EY Review of the UK oilfield services industry, March 2015

    *Referred to as Facilities in EY Review of the UK upstream oilfield services industry

    231 Marine & subsea

    companies

    Combined revenue: 5.2bn

    469 Support & services companies

    Combined revenue: 4.9bn

    Engineering & construction*

    Top 5 engineering & construction

    companies Combined

    revenue 4.6bn

    212 Wells companies

    Combined revenue: 3.4bn

    Top 5 Marine & subsea

    companies Combined

    revenue 5.03bn

    Top 5 support & services companies Combined

    revenue 2.5bn

    Top 5 wells companies Combined

    revenue 3.8bn

    81 Reservoir companies

    Combined revenue: 0.5bn

    Top 5 reservoir companies Combined

    revenue 0.8bn

  • 5 Oil pressure

  • 6Oil pressure

    Key drivers for consolidation

    Oilfield services sub-sector

    Operational priorities in current market

    Potential rationale for M&A

    Vessel operators Maintaining asset utilisation Maximising day rates Protecting existing contracts and

    backlog Matching asset capability to

    regional requirements Reviewing capex commitments

    Re-position within sector (e.g., between capex and opex projects)

    Acquire new capability Improve ability to serve tier-one

    global clients Cost synergies Release or redeploy vessels

    following consolidation

    Equipment manufacturers

    Matching product range to market demand

    Optimising overheads Implementing flexible working

    practices Managing inventory Understanding product

    profitability

    Cross-sell products Acquire new technology, brands

    or customers Optimise manufacturing footprint Reduce or improve absorption of

    overheads Access low cost manufacturing Cost synergies

    Offshore drillers Protecting existing contracts and backlog

    Optimisation of existing fleet Cost optimisation

    Broaden capabilities Cost synergies Fleet optimisation Release or redeploy rigs

    Seismic Asset retirements Optimisation of existing fleet Multi-client activity Reprocessing of surveys

    Broaden service offering (eg., mutli-client, processing)

    Increase technologies Fleet optimisation Cost synergies

    Key drivers for consolidation across the sector include:

    Step change reduction in costs through synergies

    Access to new geographical markets

    New technologies and services

    Within the sub-sectors below, further consolidation rationale can clearly be identified.

  • Achieve economies of scale or improve market positioning

    Consolidate

    Generate value for investors through being acquired

    Exit

    Spread risk across geographies and new services or products

    Create optionality

    Free up cash through divestment, and focus management attention on key activities

    Focus on core

    7 Oil pressure

    What strategies are available?

    To protect and grow shareholder value, management need to make a clear assessment. Decide where you are best placed to deliver value through one of the strategies below:

    Oilfield services companies that are close to the E&P customer, helping to secure production and cash flows, are likely to be more resilient.

  • Pre deal Post dealDeal identification

    Identify potential buyers and sellers

    Advice on negotiation Market expertise

    Integration Establish integration

    blueprint Prepare for Day 1 Underpinning

    integration plan Integrate operations

    and IT Deliver cost

    reductions and synergies

    Identify further upside

    Carve-out planning and execution

    Understand all standalone and stranded costs

    Estimate one-off separation costs

    Plan and deliver carve-out ready for sale

    Exit readiness Prepare the business

    for sale Achieve the best price

    Diligence Understand the risks Validate the costs Pay the right price Identify additional

    upside

    If acquiring If selling

    Exit

    1: EY transaction database

    8Oil pressure

    How to do it?

    The following steps are key to ensuring that value is captured, protected and maximised.

    From our experience within oilfield services, cost synergies of up to 12% of target revenue1 have been achieved through transactions.

  • 9 Oil pressure

    EY brings you a wealth of experience, global reach and has proven ability in supporting oilfield services companies during transactions

    EY has over

    10,000 Oil & Gas industry specialists across the globe, with

    a wealth of industry and functional knowledge

    1

    3

    6

    Divestment of a global marine contractor business

    EY advised a global offshore contractor on its acquisition of a North Sea/GoM deepwater SURF and floater installation company. The target was carved out from a global OFS company

    1

    Merger of two major oilfield services companies

    EY supported client and target company management to plan and execute the integration

    2

    Acquisition of a global EPC business

    EY advised a global engineering services company in its key acquisition of a global O&G E&C company. The acquisition materially increased the size of the workforce from 30,000 to 45,000 and was a key milestone in the companys transition from turnaround to growth

    3

  • 10Oil pressure

    EY brings you a wealth of experience, global reach and has proven ability in supporting oilfield services companies during transactions

    4

    1

    1 5

    3

    2

    6

    Acquisition of a well intervention services company

    EY assisted the client with reorganising its existing European well intervention services business ahead of the acquisition of a middle-eastern competitor

    4

    Carve out of a subsea products business

    EY planned and supported the reorganisation and sale of a subsea products business

    5

    Merger of two global EPC businesses

    EY advised a major international engineering and consultancy company in its acquisition of another publicly listed E&C business. The transaction expands the clients offering and geographic footprint, and allows for efficiency savings in reduced overheads

    6

  • 11 Oil pressure

    Contacts

    Andy Brogan

    Partner Global Head of Oil & Gas Transactions

    Tel: + 44 20 7951 7009Email: [email protected]

    Glenn Peters

    Partner Restructuring

    Tel: + 44 20 7951 4423Email: [email protected]

    Eraj Weerasinghe

    Director TAS, Valuation & Business Modeling

    Tel: + 44 20 7951 0565Email: [email protected]

    Tim Bunnell

    Director Operational Transaction Services

    Tel: + 44 20 7951 4708Email: [email protected]

    Barry Fraser

    Executive Director Lead AdvisoryTel: + 44 122 4653 255Email: [email protected]

    Michael McCartney

    Director Capital & Debt Advisory

    Tel: + 44 20 7951 3263Email: [email protected]

    Cline Delacroix

    Executive Director Oilfield Services Corporate Finance

    Tel: + 44 20 7806 9204Email: [email protected]

    Michel Driessen

    Partner Operational Transaction Services

    Tel: + 44 20 7951 8792Email: [email protected]

    David Rees

    Executive Director Operational Transaction Services

    Tel: + 44 20 7951 2171Email: [email protected]

    Stuart White

    Director TAS Transaction Diligence

    Tel: + 44 122 4653 9199Email: [email protected]

  • 12Oil pressure

  • 13 Oil pressure

    Notes

  • 14Oil pressure

    Notes

  • EY | Assurance | Tax | Transactions | Advisory

    About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

    2015 EYGM Limited. All Rights Reserved.

    EYG No. DE0644

    29667.indd (UK) 11/15. Artwork by Creative Services Group Design.

    ED None

    In line with EYs commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.

    This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

    ey.com/oilandgas