Increased Deal Activity Accompanied by Rising Deal Capital

Wednesday 7 March 2012, Amsterdam

The study, which is an offering from the company’s Energy Research Group, provides an in-depth analysis of the global oil and gas deal landscape and highlights the various concerns and shifting trends. The report provides a qualitative and quantitative analysis of the prevalent deal types in all the sectors of the industry with relevant examples and highlights the deal rationale, citing the strategic incentives of the respective parties involved. The report provides in-depth analysis of the key trends and challenges in the global deal landscape. The report is built using data and information sourced from proprietary databases, primary and secondary research and inhouse analysis by a team of industry experts.

Increased Deal Activity Accompanied by Rising Deal Capital

The global deal landscape resembles an interconnected web of firms, entities and individuals. Spotting deal trends is a useful tool in understanding the way various companies interact with one another to make business work on a global level. With an ever deepening global outlook, the occurrence of deals and deal activity has increased in the past decade. Consolidation has begun to be a force that could save companies from the blow of growing competition worldwide. The competition itself grew due to several factors, some of which are the increasing number of fresh companies that have begun populating the industry, and the existing companies themselves tryingto delve into new markets and geographical areas with a view to improving their global footprint. What ensued as a result was a scenario where companies trying to venture into new markets had to face competition from local, established players who had a better idea of the local market.

There wass an increase in deal capital from $39.6 billion in 2004 to $ 96.1 billion in 2007 followed by a decline in 2008 and a crash in 2009. This can be attributed to the global economic recession. However, the deal capital has risen again in 2010 to a value higher than all the years before.


Rising Deal Size Signified by Rising Average Deal Value

The global average deal capital has remained steadily growing and uniform throughout, from 2004to 2010, unaffected by the recession, which leads to the conclusion that it is the number of deals that has gone down and not the average size of the deal, owing to the observation that the deal capital has seen a decrease.

Debt Offerings Dominating the Global Deal Landscape

The primary advantage of a Debt Offering is that it has the potential to generate a huge amount of capital without the firm having to relinquish its share in the ownership or its stakes in future profits. The aggregate amount of capital generated in Debt Offerings worldwide reasonably exceeds capital generated by other means of raising capital like Divestitures, Buy-Outs, Asset Sale, and Equity Offerings. A debt offering also provides a company with a window of time, after which they can repay the principal, all the while paying a 'coupon rate' to the public that have lent the capital, on an annual basis.

The capital raised by a Debt Offering can be used to clear existing debt, buy assets, buy back shares, fund acquisitions, or for general corporate governance. A debt offering also provides a company with a window of time, after which they can repay the principal, all the while paying a 'coupon rate' to the public that have lent the capital, on an annual basis. The capital raised by a Debt Offering can be used to clear existing debt, buy assets, fund acquisitions, or for general corporate governance. Bonds are conservative and steady tools of investment in the public sphere, because their inclusion ensures stability in any individual investment portfolio.

Debt Offerings Dominating the Upstream Sector of the Oil and Gas Industry

The upstream sector is the sector that includes operations of Exploration and Production, the ones that involve the actual searching for oil and gas and bringing to production wells with proven reserves. In the upstream sector, it can be observed that Debt Offerings have contributed to a major fraction of the deal capital, at 65% of all the capital involved, followed by Mergers and Acquisitions. On the whole, Private Equity and Venture Capital have remained insignificant while equity Offerings is small to a degree that is sharply in contrast with the share of Debt Offerings. Debt Offerings have been majorly resorted to for raising capital by upstream companies for strategic and operational purposes.

Key Global Events Influencing the Global Deal Scenario – The Global Economic Recession

The economies of states depend on several factors that are intertwined in a complex manner. The web of economic activity is an interdependent system involving several players and networks. Therefore, it is a matter of fact that the exact reasons or the starting point for a recession might be difficult to pinpoint. Most economists believe that for the smooth functioning of an economy, there needs to be a regular resolution of economic tension created in the system. One example of economic tension is debt, which is best cleared on a regular basis for the individual that holds the debt and for the system on the whole, in the ideal case. The situation turns even more volatile if the debt remains intact and is not backed up by the proper collaterals to cushion the lender against possible blows. Failure to resolve minor economic tensions leads to a piling up of such tension in the system which shall create a situation that could crash anytime due to the long term build up. Resembling the snapping of a taut string, it takes just a single event for the system to collapse and deviate from normal functioning.

The low industry activity that characterizes a recession also causes a reduction in deal activity since deals are essentially an exchange of capital and goods. A deal makes strategic sense only when the company is running in a state of capital surplus. In a scenario where there is a volatility inthe earnings of a company, it would choose to retain the capital for operational expenses in timesof crisis, which are strong possibilities in times of an economic recession.