A recent report by PricewaterhouseCoopers (PwC) has revealed that corporate deals between privately held businesses and investors have plummeted to their lowest level in eight years.
Transactions shriveled to $3 billion in 2023, a stark contrast to the $20 billion recorded in 2015.
The frequency and scale of mergers, acquisitions, asset sales, and debt financing deals in the oil and gas sector are crucial indicators of the industry’s health and its impact on the broader economy.
These transactions drive investments, improve infrastructure, enhance technical expertise, and ultimately improve living standards.
The decline in investment activity poses a significant challenge to these objectives.
According to PwC’s analysis of upstream investment trends from 2015 to the first quarter of 2024, investment levels were relatively high before 2015, peaking at $20 billion in that year.
This was followed by a period of stability between 2016 and 2018, with investments remaining at $10 billion annually.
However, a notable decline began in 2019, with investment dropping to $8 billion, and continued to $3 billion in 2021, persisting through 2022 and 2023.
Several factors contribute to this decline. Pedro Omontuemhen, a partner at PwC, highlighted frequent theft, vandalism, and militant attacks as significant disruptors.
These issues not only impede production but also cause substantial financial losses, deterring mergers and acquisitions (M&A) activity.
Omontuemhen pointed to Shell’s pipeline shutdowns in the Niger Delta as an example of how these disruptions have impacted the sector.
Also, frequent regulatory changes and a lack of transparency create an uncertain environment, further deterring investment in M&A activities.
The infrastructure deficit forces costly alternatives like barging, complicating efficient production and transportation, and thereby reducing the attractiveness of M&A deals.
Stringent local content policies also add complexity and costs to international deals. For instance, Oando’s acquisition of Eni’s NAOC company faced increased transaction costs and complexities, making the process more challenging for foreign investors.
Joe Nwakwue, former chairman of the Society of Petroleum Engineers (SPE), pointed out that securing financing is challenging due to perceived risks and economic instability.
Fluctuating global oil prices and demand also impact asset valuations, complicating M&A activities, as seen during the COVID-19 pandemic when declining oil prices made high acquisition valuations difficult to justify.
Despite the overall decline, there was a slight uptick in the first quarter of 2024, reaching $4 billion. This improvement was driven by shifts in asset ownership within Nigeria’s onshore assets.
Four large asset sale announcements involving oil majors like ExxonMobil, Equinor, Eni, and Shell, transferring assets to domestic players such as Seplat Energy, Chappal Energies, Oando, and the Renaissance consortium, contributed to this increase.
Nigerian Upstream Petroleum Regulatory Commission (NUPRC) head, Gbenga Komolafe, mentioned that approvals of divestment deals would speed up if International Oil Companies (IOCs) agreed to take responsibility for oil spills and clean-up, potentially prolonging the process.
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