Oil prices have bounced back to around US$40 per barrel compared to the technical-inspired lows seen in April this year.
As a result, E&Ps (explorers and producers) are slowly shifting their mindset from survival to growth and, for cash-rich companies, the opportunity set is increasing, according to Peel Hunt.
The broker has been assessing the possibility of a wave of takeovers in the mid-cap oil and gas sector following the recovery in crude.
M&A has typically been well received by the market in recent years, it said, and a merger is s an attractive way for these E&Ps to grow inorganically.
Two deals are already underway, it notes. () has just renegotiated the terms of its acquisition of a batch of assets in the North Sea from BP.
Energean Oil PLC () struck a deal last year with Italian firm Edison to acquire a range of producing and development assets for US$750mln.
Part of that deal has been amended to exclude Algeria while a sell-on of Edison’s North Sea assets looks to have fallen through, but the bulk of agreement is set to complete before the year-end.
Peel Hunt has split the rest of the companies into potential acquirers and acquirees.
() has been the standout company in the London E&P sector over the past five years, says the broker.
The company has added the most value through shrewd acquisitions leading to a 18-fold rise in share value over this period.
This has been achieved without raising any new equity, adds the broker.
“Going forward, we anticipate Serica will be actively looking to acquire additional assets in the North Sea and continue its measured approach to achieving growth via astute acquisitions.”
At 108.4p, Serica is valued at £281mln.
(), also has a track record of making high-quality acquisitions at attractive prices, said Peel Hunt.
“We value Montara and Stag at US$400mln vs a price paid of US$113mln.
“Despite the recent Lemang announcement, we believe Jadestone has the balance sheet, ambition and shareholder support for another acquisition in 2020/21.”
(LON;CNE) has a history of pursuing selective M&A at opportune moments to deliver growth, Peel Hunt noted, such as selling out of India and the Nautical Petroleum and Agora Oil & Gas acquisitions.
“Today, it is a solid production and development-focused E&P with a healthy balance sheet and an opportunity to acquire at the cyclical low point,” said Peel Hunt.
() has a cash balance of US$45m compared to a market cap of US$30m.
Its aim is to acquire an onshore, low-cost production asset, according to Peel Hunt.
SDX Energy PLC () has had an excellent 12 months with 9/12 wells successful in the recent E&A drilling campaign.
The flagship-operated S. Disouq field reached plateau ahead of expectations and is benefiting from a 35% increase in 2P reserves, and Moroccan gas demand recovering quicker than expected.
However, while the company is performing very well operationally, the stock’s low market cap…
Read More: Oil price recovery will switch E&P mindset to acquisitions, suggests Peel Hunt