Environment, Worldwide oil & gas production led to falling due to financial crisis
The financial crisis that has created a world wide credit crunch may stem the flow of capital expenditure by exploration and production (E&P) companies. With commodities prices now having fallen 63% for oil and 50% for natural gas off recent highs in July 2008, E&P companies are cutting back their capital budgets and drilling plans for the remainder of 2008 and 2009.
E&P companies are expected to spend around $96.2 billion in 2008, up by 41% from $68.4 million in 2007. The fall in oil prices, on top of the credit crisis is expected to end this trend. The plunge in oil prices near $45 a barrel and natural gas near $6 per mcf will curtail E&P companies' spending on new projects, limit production growth.
The financial crises have led to the reduction in the number of M&A deals in the upstream oil & gas industry. There were on an average around 48 upstream M&A deals every month during April 2008 to September 2008. However, the number of M&As went down to 41 deals in October 2008 and just 36 deals in November 2008. Going forward, highly leveraged deals will become more difficult in the sector due to restricted access to credit. However, we expect further consolidation in the industry driven primarily by reserve replacement pressures and the need to diversify geographically.
In 2008, production growth is expected to be around 14%, the highest growth rate since 2003. If commodity prices continue to trade around the current level, companies are expected to cut down their initial production guidance for 2009 and onwards.
The global financial and economic crisis has led to falling stock markets and oil prices. The combination of falling stock markets and oil prices could be enough to trigger strategic acquisitions and partnerships by the oil and gas companies. To date, 514 E&P deals (Asset Transactions, Merger and Acquisition) took place globally, with a combined worth of around $138.6 billion, as compared to 437 deals in 2007, with a combined worth of $141.5 billion.
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