Cross-Border Mergers and Acquisitions in the Oil and Gas Industry: An Overview
Abstract
:1. Introduction
2. Literature Review
3. M&A in the Oil and Gas Industry
4. Reasons for M&A in Oil and Gas Facilities
4.1. Economic Reasons
4.2. Industry Specific
4.3. Additional Characteristic of M&A
- Horizontal integrations (e.g., upstream–upstream/downstream–downstream) (in addition, M&A transactions between firms that are operating in other segments of the industry, such as midstream or oilfield services and equipment, e.g., midstream–midstream acquisitions or oilfield services and equipment–oilfield services and equipment could be driven by similar factors): according to the property rights theory, this makes only sense if the acquiring firm provides substantial synergy gains, e.g., from its superior knowledge in engineering and maybe marketing (but selling crude oil requires presumably not much of that). The question is how to approximate the technical gain and know-how of the acquiring firm? Is the overtaking firm being part of a more advanced economy (GDP per capita, but this is wrong for countries such as Kuwait, Qatar that have higher per capita incomes than most highly developed countries, and therefore, share of tertiary education).
- Vertical integrations (e.g., downstream–upstream/integrated oil and gas–upstream) (vertical integrations refer to investments between companies that are operating in a different segment of the industry or different sectors, e.g., midstream oil and gas company invest into a firm that operates in the upstream industry): synergies as well as hedging arguments can explain this activity, but if this is the case, then vertically integrated companies must be more profitable than disintegrated ones.
- Full control (say over a Texas oil field) versus no control in many oil producing countries where the “property” title is restricted to a production sharing agreement. The type of the acquirer (e.g., upstream, integrated oil and gas firm, investors) and a firm focusing on either upstream or downstream investments, a firm at least to some extent integrated (i.e., active in upstream and downstream), and a special role for (foreign) national oil companies.
- Facing political reasons, the extraction of natural resources is in many countries, if not most, heavily restricted and limited to national monopolies. This includes many risks from changes in regulations, taxation, up to expropriation. Given the differences across countries and their regulatory regime and the political risk, there is a big difference between acquiring an oil field with a cumulative production, e.g., capacity of say one million barrels, in Texas or Alberta or in Nigeria or Libya.
- Hedging arguments make sense only for downstream–upstream mergers and only if the target company is in a reliable country. In short, if one is willing to pay a premium, or only agrees to the contract if the target company is in a country in which the rule of law applies and economic liberty is guaranteed (corresponding indices exist)—less obvious is the role of democracy and political freedom.
- Finally, CEOs striving for empires provide an explanation for M&A, at least inter alia, if the above economic reasons fail.
5. Data
6. Results
6.1. Domestic Deals
6.2. Cross-Border M&A: Geographical Patterns
6.3. Cross-Border M&A: Geopolitical and Economic Events
7. Discussion and Conclusions
Author Contributions
Funding
Acknowledgments
Conflicts of Interest
Appendix A
References
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Study | Theoretical Perspective | Sample (Geography) | Key Findings |
---|---|---|---|
M&A studies in general | |||
Lafontaine and Slade [12] | Organizational behavior, property rights, transaction costs | (Descriptive framework) | A rich set of theories can explain the firm boundaries. Transaction costs and property rights are crucial for integrations. For instance, when specific assets are involved or new resources are required for growth, parties apply for long term contracts to protect their investments or gain desired assets. Given the incompleteness of contracts, companies prefer M&A and other integration methods to long-term contracts if the environment is uncertain or rents are large. |
Kissin and Herrera [13] | Institutional environment | (Theoretical framework) | Cross-border M&A requires special focus to target countries. For instance, factors such as exchange rate, local rates, local accounting standards, trade regulations, debt/equity ratios may impact the acquisitions. |
Rossi and Volpin [14] | Institutional environment, institutional economics | Empirical evidence based on M&A announcement in 49 target countries, over the period 1990–1999. | The increasing inflows to target countries are strongly driven by institutional environment. Particularly, higher investor protection laws and better accounting standards have a positive impact on M&A activity. |
Marthnova and Renneboog [15] | Corporate governance | Empirical evidence based on domestic and cross-border deals, 2419 transactions, 24 countries from Continental Europe and UK, including acquirer and target view, over the period 1993–2001. | The target corporate governance standards have an important impact on the returns from cross-border mergers and acquisitions. |
Xie et al. [16] | Neoclassical economics, institutional economics, behavioral approach | (Theoretical framework) | Countries with rich natural resources, developed financial markets, large market potential, adequate infrastructure facilities, strategic assets such as advanced technologies, and bilateral trade openness may likely encourage higher capital inflows through the acquisition method, which addresses the quality of institutions in the target country. |
M&A studies in the extracting, energy, and oil and gas industry | |||
Bos et al. [2] | Macroeconomics, mergers, and acquisitions | Empirical evidence based on the domestic U.S. M&A observations, 468 deals, over the period 1978–2016. | The relationship between oil returns, oil price volatility and M&A transactions show that M&A activity in the oil and gas industry fundamentally depends on future expectations of oil and gas prices. |
Berntsen et al. [17] | Investment decision-making | Empirical evidence based on oil and gas companies operating on the Norwegian Continental Shelf. 280 assets, 107 approved fields and 172 discoveries. | The study shows that the most important factors influencing the investment decisions are the size of the oil and gas reserves, geological variables, and the price of oil. The effect of oil price volatility is insignificant. |
Ng and Donker [10] | Economics, equity valuation | Empirical evidence based on Canadian oil and gas companies. | Energy reserves and prices cause and affect takeover activity, value, and performance. Acquirers are motivated to purchase reserves, while targets are motivated to sell based on market timing. Acquirers have negative takeover performance from lower risk. |
Hsu et al. [5] | Neoclassical economics, conventional financial theories | Empirical evidence based on 4724 M&A transactions in the U.S. between 2014 and 2013. | Industry-specific factors, for instance, oil price is the most important indicator to drive M&A investments in the oil and gas industry. |
Mohn and Misund [18] | Corporate investment, macroeconomics | Empirical evidence based on 115 companies over the period 1992–2005. | Macroeconomic uncertainty creates a bottleneck for oil and gas investment and production, whereas industry-specific uncertainty has a stimulating effect on the oil and gas investments. |
Dowling and Vanwalleghem [19] | Institutional theory, corporate governance | Empirical evidence based on Gulf Cooperation Council (GCC) firms, over the period 2002–2014, 1126 deals. | Effective formal institutions (good governance) and close informal institutions (cultural similarity) in a target nation are preferred in M&A investments. |
Elheddad [9] | OLI paradigm, internalization | Empirical evidence based on GCC economies, 6 dependent oil countries, their FDI inflows over the period 2003–2013. | The impact of corruption is positive and significant on oil foreign direct investments. |
Total M&A | Domestic M&A | Cross-Border M&A | ||||
---|---|---|---|---|---|---|
Year | Number | Avg. Value USD MM | Number | Avg. Value USD MM | Number | Avg. Value USD MM |
2000 | 635 | 429 | 410 | 534 | 225 | 174 |
2001 | 735 | 257 | 471 | 233 | 264 | 308 |
2002 | 740 | 183 | 498 | 190 | 242 | 160 |
2003 | 568 | 143 | 395 | 110 | 173 | 249 |
2004 | 821 | 205 | 543 | 197 | 278 | 226 |
2005 | 1095 | 237 | 664 | 254 | 431 | 198 |
2006 | 1393 | 314 | 904 | 359 | 489 | 220 |
2007 | 1516 | 288 | 940 | 286 | 576 | 292 |
2008 | 1089 | 240 | 637 | 170 | 452 | 366 |
2009 | 914 | 321 | 568 | 365 | 346 | 238 |
2010 | 1013 | 412 | 616 | 401 | 397 | 433 |
2011 | 1141 | 377 | 694 | 326 | 447 | 458 |
2012 | 1143 | 432 | 703 | 457 | 440 | 385 |
2013 | 944 | 314 | 567 | 287 | 377 | 365 |
2014 | 1008 | 553 | 691 | 580 | 317 | 484 |
2015 | 788 | 528 | 548 | 582 | 240 | 381 |
2016 | 836 | 561 | 606 | 498 | 230 | 752 |
2017 | 974 | 409 | 673 | 445 | 301 | 327 |
2018 | 826 | 847 | 547 | 922 | 279 | 675 |
Total | 18,179 | 366 | 11,675 | 373 | 6504 | 352 |
Summary Statistics | Mean | Standard Dev. | Min | Max |
---|---|---|---|---|
Number of M&A Deals | 956.79 | 241.04 | 568 | 1516 |
Avg. Total Deal Value USD MM | 370.99 | 168.28 | 143.08 | 846.96 |
Number of Domestic M&A Deals | 614.47 | 141.20 | 395 | 940 |
Avg. Total Deal Value USD MM | 378.85 | 192.71 | 109.93 | 922.47 |
Number of Cross-Border M&A Deals | 342.32 | 108.76 | 173 | 576 |
Avg. Total Deal Value USD MM | 352.32 | 159.32 | 160.53 | 751.96 |
M&A Deal Counts | Oil Price | Natural Gas Price | |
---|---|---|---|
M&A Deal Counts | 1 | ||
Oil Price | 0.6426 | 1 | |
Natural Gas Price | 0.5533 | 0.2433 | 1 |
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Özgür, Ş.; Wirl, F. Cross-Border Mergers and Acquisitions in the Oil and Gas Industry: An Overview. Energies 2020, 13, 5580. https://doi.org/10.3390/en13215580
Özgür Ş, Wirl F. Cross-Border Mergers and Acquisitions in the Oil and Gas Industry: An Overview. Energies. 2020; 13(21):5580. https://doi.org/10.3390/en13215580
Chicago/Turabian StyleÖzgür, Şevkat, and Franz Wirl. 2020. "Cross-Border Mergers and Acquisitions in the Oil and Gas Industry: An Overview" Energies 13, no. 21: 5580. https://doi.org/10.3390/en13215580