Oil companies are souring on the notion that low oil prices will prompt a wave of acquisitions, saying that assets are still priced too high to be attractive.
Equity investors are factoring in a recovery in oil prices, meaning valuations are too high to consider any strategic mergers or acquisitions, ConocoPhillips chief executive Ryan Lance said at the IHS CERAWeek conference in Houston.
"I haven't seen anything that sort of meets our hurdle," Lance said. "Anything we were to bring into the company has to displace something else and right now that hurdle's pretty high."
NuStar chief executive Brad Barron also suggested valuations are too high to be attractive.
"We're hearing the seller's expectations are still fairly high on some of this stuff," Barron said in an earnings call this week. Still, "We are actively looking all the time."
Oil major Shell earlier this month reached a deal to buy UK-listed BG for $70bn. Late last year, the world's second-largest oilfield services company Halliburton agreed to acquire its rival and the third-largest player Baker Hughes for about $35bn. The deals, particularly Shell's move to buy BG, triggered talk that other majors such as ExxonMobil may be on the prowl for mergers.
BP chief executive Robert Dudley said he didn't think the recent mega-mergers made more consolidations likely, however.
"I don't see forces at work for a wave of consolidation, unless oil stays low for longer," Dudley said at CERAWeek.
Cheap capital has also limited some deal-making by propping up companies that would otherwise want to sell assets, Kinder Morgan chief executive Richard Kinder said.
During the financial crisis of 2007 and 2008 "... it was difficult for a lot of companies in the energy field to get financing. That's not the case today. There's so much money out there chasing yield and growth," Kinder said in a company earnings call. "We're not going to do anything foolish or stretch beyond good discipline to make any acquisitions."
To be sure, deals have happened in recent months. Producer Encana late last year sold natural gas gathering and compression assets in the Montney development of northeastern British Columbia for C$412mn ($340mn). Enlink Midstream earlier this year also signed a deal to acquire hedge fund-backed Coronado Midstream, which owns natural gas and processing facilities in the Permian basin, for $600mn.
But one large deal that was rumored — the sale of Whiting Petroleum — failed to materialize when the company issued more stock instead.
"To the degree that capital markets are open, the name of the game is preserving liquidity and preserving the amount of time you can operate in a low oil price environment," said Fitch Ratings analyst Mark Sadeghian.
In some cases, the current environment has discouraged sales. Canexus has been trying to unload its beleaguered but still valuable crude-by-rail facility in Bruderheim, Alberta, but has struggled as suitors backed off amid uncertainty caused by low prices.
"We do think there's clearly potential for consolidation," Sadeghian said. But executives are "... right to say it depends on price and valuation. So we'll just wait to see when the two meet or if they meet."
Deals are likely to play out in drilling and services, particularly because of an excess of uncontracted ultra deepwater drilling vessels, he added.
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