Benchmark Brent crude has fallen by 70% since Summer 2014 to under $35-barrel – a slump which is exacting a toll on corporate balance sheets, revenues and reserves.
In its forecast for 2016, Wood Mackenzie analysts said: “We expect that upstream M&A activity will increase this year, though the shape of that activity will be dictated by oil prices.
“Should crude prices remain low, balance sheets will become ever more stretched and we expect to see more forced sellers.
“Financing options will be more limited than in 2015 and few companies are safe.
“While the top tier of international oil companies can largely ride out a further year of low prices, the next tier down may have fewer alternatives. Corporate actions will follow, including asset sales.
“Despite the gloomy outlook there will always be counter-cyclical buyers willing to bet on an eventual recovery. Major players will be looking toward long term strategic deals, while the more ambitious, better funded small caps will be looking to come out of this downturn ahead of peers. Private equity continues to remain poised for action.
“Those companies holding out for optimal pricing will be forced into action. We expect the two-tier market to accentuate. There will still be interest and competition for the best assets, while buyers will dictate the price of lower value assets.
“First mover advantage is key – securing deals before competition grows and inflation sets in. At the moment, companies are focused on survival, but this could quickly shift back to growth, in a higher oil price environment.”