By Paul Simao, Fri 10 Oct 2008 - CAPE TOWN (Reuters)
The global credit crunch could usher in a new wave of mergers and acquisitions in the oil sector, especially in Africa where small firms will find it increasingly difficult to bankroll exploration.
The shakeout could provide the more financially stable of the world's oil firms a rare opportunity to scoop up prized oil and gas assets on the continent at bargain prices, industry executives and investors say.
Those most at risk of a takeover will be small independent firms which lack significant cash flow and are relying on equity and debt to finance drilling and production development.
That strategy has worked as long as investors and bankers were willing to gamble on high-risk but potentially lucrative oil and gas ventures. Falling share values, a drop in the oil price and a collapse of credit lines have curbed that appetite.
"I think there is a lot of M&A (merger and acquisition) activity coming up," said Peter Clutterbuck, president and chief executive of Orca Exploration, a Toronto-listed oil firm based in Africa.
"Little exploration companies will be taken out because they will not be able to raise money and won't survive. A lot of them are in Africa."
Companies exploring in the Gulf of Guinea could be among the first takeover targets.
The region, which is shared by Nigeria, Gabon and several other nations, is rich in oil reserves, but most of it is located offshore, making exploration and drilling an expensive and daunting undertaking even for those with deep pockets.
Angola, sub-Saharan Africa's second largest oil producer, also could see the number of exploration companies drilling in its waters dwindle as the high cost of exploration puts the pinch on balance sheets.
PRESSURE FROM STATE FIRMS
Even companies with stable cash flow from producing oilfields may be squeezed as banks adopt a more conservative approach to lending throughout capital-intensive parts of the global economy, including the energy sector.
Stephen Enderle, senior manager for energy finance at South Africa's Standard Bank, said financing would come in smaller amounts and some energy firms should consider delaying major capital expenditures until the lending environment improved.
"Banks are going to go back to their core clients, from whom they have made money in the past and from whom they will make money in the future," Enderle said in a presentation at the Africa Upstream 2008 oil conference in Cape Town this week.
"If you can scale back your capex (capital expenditure) and push it out into next year, you're going to get a lot more ear time with your bank."
Africa's state-owned oil firms, which have watched nervously as the price of oil shed about half its value after touching a high just over $147 a barrel earlier this year, may decide to push financially weak players to merge or sell off assets.
Oil fell below $80 a barrel on Friday, depressed by expectations global demand growth will shrink if the credit crisis pushes the world economy into recession.
Some firms could be forced to pair up with Western independents or emerging oil players from China, Malaysia and other Asian nations that are keen to tap into Africa's energy supplies to feed their growing economies.
PTT Exploration and Production, a unit of Thailand's energy giant PTT PCL, may be among those interested in picking up assets, according to Asdakorn Limpiti, vice president of the company's strategy and capability development division.
"Share prices are becoming more reasonable and that will lead to acquisitions. Half of our growth strategy has come from acquisitions," Limpiti told Reuters at the Cape Town conference.