KUALA LUMPUR: The bottoming out of oil prices will give impetus to the consolidation of upstream oil and gas (O&G) service providers in Malaysia, said an industry specialist.
Frost & Sullivan Asia Pacific vice-president for energy and environment Ravi Krishnaswamy said companies are getting more confident as crude oil prices start to pick up, making mergers and acquisitions (M&As) a more viable option.
Smaller companies find it more difficult to survive, especially where digital technology is concerned, as they are not able to invest and grow and meet the global criteria, he added.
“The best thing to do for these smaller players is to look for synergies with other bigger players or get acquired as this would be a more resilient approach.
“Although Petroliam Nasional Bhd (Petronas) has been very open about the industry’s need to merge and consolidate, it cannot force these companies to do so, hence the need to encourage such activities instead,” Ravi told NST Business recently.
The oil price is expected to average at about US$55 (RM234) per barrel this year, during which the market will experience a slow price recovery.
Decline in oil stockpile, driven by modest demand in growth for oil, is expected to be the key driver for the recovery of oil prices.
Frost & Sullivan expects the global production of petroleum and other liquid fuels to reach 97.4 million barrels per day this year.
The Organisation of the Petroleum Exporting Countries members are likely to account for 41.3 per cent of the global oil production.
“We expect 2017 to be a transition year for long-term changes globally. With rising protectionism across the world, the issue of energy security will once again come to the fore in Asia Pacific.
“This will accelerate adoption of clean technologies, which can be harnessed locally, and those that are less impacted by global policies and price fluctuations,” said Frost & Sullivan in its 2017 Outlook: M&A Opportunities report.
UMW Oil & Gas Corp Bhd and Ekuiti Nasional Bhd (Ekuinas) recently announced lthe consolidation of their O&G businesses under UMW-OG.
The deal involves UMW O&G taking over Ekuinas units Icon Offshore Bhd and Orkim Sdn Bhd via cash and share swap.
Ravi said there are four areas which are ideal for M&As to take place — fabrication, upstream, offshore vessel and engineering services.
“These four areas could open up opportunities for bigger players looking for acquisitions. Although the rising oil price took off at a slow start, it should be stable at between US$50 and US$60 per barrel.
“This is a good time to start looking at consolidating, especially with the availability of assets that are of good quality and value which could garner attractive valuation for the players,” he added.
On the possibility of more retrenchments this year, Ravi said the O&G sector may have seen the worst of its negative cycle as it is already in an upward momentum mode for investments.