Competitive environment and critical buyers create new challenges for
CALGARY, Feb. 11, 2013 /CNW/ - Growing pressures around cost and access
to capital are setting the stage for a dynamic year of transaction
activity in Canada's oil and gas industry, with divestments taking on a
greater strategic role, according to Ernst & Young.
"Getting access to capital at a fair price is top of mind for oil and
gas companies — and it's playing a big role in their decision making,"
says Barry Munro, Ernst & Young's Canadian Oil and Gas leader. "Leading
companies are taking a much more thoughtful approach to portfolio
management, divesting assets not aligned with their strategic goals and
refocusing on those best positioned to create shareholder value."
Ernst & Young's 2012 Global corporate divestment study shows 17% of global oil and gas respondents are currently in the
process of shedding assets, and 20% plan to do the same over the next
"While oil and gas companies' desire to unload assets is growing, the
conditions for completing these transactions remain challenging," says
Munro. "Companies are facing a much more competitive selling
environment, and 45% of our global oil and gas respondents reported an
increase in the level of buyer scrutiny."
Munro says that means sellers must challenge themselves to undertake
thorough preparation and improve how they market their assets to the
"right" potential suitors. For 39% of oil and gas respondents,
enhancing value to market means tailoring the divestment information to
Canadian oil and gas companies can maximize their divestment success by
adopting and executing on these five leading global practices:
- Conduct structured and regular portfolio management: Companies that regularly divest of non-core assets through structured
processes are more likely to achieve their strategic goals.
- Consider the full range of potential buyers: Appealing to a full range of buyers, including strategic and
financial, domestic and overseas, can create strong interest for an
asset and realize a price that meets expectations. An upfront and
thorough analysis of who may be a buyer and why is key.
- Articulate a compelling value and growth story for each buyer: Buyers are more circumspect about the growth potential of businesses
being offered for sale, yet few sellers articulate a strong value and
growth story. In the oil and gas business, telling a plausible
development story for a resource play when capital is constrained is
- Prepare rigorously for the divestment process: Select changes to the preparation process can make a material difference
to value. Examples include protocols for information sharing and
confidentiality, engagement with target management and investment by
senior team members. Timing is critical to a successful process — the
buyer's diligence process is not the time a seller should discover
issues about their assets that may adversely impact value.
- Understand the importance of separation planning: Buyers that do not fully understand factors influencing separation
planning perceive greater risk, which is often reflected in their
offering price. Successful sellers address these perceptions upfront
and present a credible and detailed plan.
"Whether companies are just trying to survive or whether they're in
search of capital to pursue new opportunities, understanding the
factors that maximize divestment success is crucial," says Munro.
"Concentrating on these factors can improve buyer confidence, increase
value, reduce disruption and accelerate the sales process. By better
managing risk, companies can increase the likelihood of transaction
success in all market conditions."
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SOURCE: Ernst & Young