Energy acquisitions seen accelerating as fear of bad deals fade

[TOKYO] Oil and gas acquisitions are poised to pick up as energy prices stabilize and fears of bad deals wane, according to Ernst & Young LLP.

Acquisitions will accelerate in the fourth quarter with most of the announced deals coming through next year, said Andy Brogan, global oil and gas transaction leader at the consultancy. There are about 2,000 energy assets available globally and buyers and sellers are gaining confidence as industry price expectations "coalesce", he said.

Oil has traded in a range between about US$43 and US$52 a barrel since early June after almost doubling from a 12-year low in February amid speculation a global glut is easing. Oil and gas deals in North America alone so far this year have outpaced mergers and acquisitions in the same period in 2015, according to data compiled by Bloomberg. Last year as a whole marked the lowest level since 2004.

"Everybody has now sort of reset to a new forward curve," Mr Brogan said by phone from London on Friday.

"The way the market was moving destroyed peoples' confidence that they understood how the market works. People can now have a conversation about what an asset is worth with both sides being comfortable that they're not going to be made fools of by doing the deal."

About 80 per cent of the assets announced for sale are upstream projects, according to Mr Brogan. Price expectations for as long as a 15-year period may help buyers assess the value of an asset that has a 20- to 30-year life span, he said.

Exxon Mobil Corp last week agreed to acquire natural gas explorer InterOil Corp to add discoveries in Papua New Guinea to its portfolio. With the range of potential payouts valuing the agreement at as much US$3.6 billion, it may represent Exxon's biggest acquisition since the US$35 billion purchase of US shale explorer XTO Energy in 2010.

"We have seen a number of processes initiated in the last month or so that indicates that firstly, there is renewed confidence among sellers, they can actually start a process and actually get to a conclusion," said Mr Brogan.

"Secondly, we are also seeing a renewed interest on the buyers front."

BLOOMBERG