2009年12月16日星期三

Ernst & Young India - An Ernst & Young Study: Declining upstream asset valuations to activate M&A

Impact of all-around bread-and-butter arrest on the oil and gas industry to be bound to clamminess constraints, as calm burning continues to abound and assembly is accepted to abide abundantly in arrears
•Declining all-around asset valuations to drive M&A by cash-rich upstream players
•Acquisition of affluence to become added aggressive
•Strong abeyant for alliances amid civic oil companies and industry in resource-rich nations

Mumbai, 17 November: The appulse of the all-around bread-and-butter arrest on the oil and gas industry will be bound to clamminess constraints, as calm burning continues to abound and assembly is accepted to abide abundantly in deficit, says the Ernst & Young address blue-blooded Upstream oil and gas - challenges and opportunities, which was appear actuality today at the Oil & Gas India Summit 2008 – Exploration and Production. Domestic awkward oil burning has registered a 6.4% circuitous anniversary advance amount back FY04, one of the accomplished a allotment of the world’s top oil-consuming nations.

The address added adds that while the all-around crisis will appulse availability of funds from the debt and disinterestedness market, cash-rich companies are accepted to chase the asleep advance route. Further, if the action persists, clandestine disinterestedness and barrier funds, who are address the accountability of the downturn, may charge to do ache sales of their oil and gas assets. Says Dilip Khanna, Partner, Ernst & Young’s Oil & Gas Practice, “with the advancing bread-and-butter abatement and the resultant blast in oil prices, the appraisal of oil and gas companies has decreased and this offers Indian companies the befalling to buy all-around assets at added reasonable prices than earlier.”

“Mergers & Acquisitions (M&A) is a applicable advantage for absolute players to access their asset base, abate costs and enhance operational efficiency, a well-structured transaction can decidedly abate accumulated aerial functions, actualize opportunities to abate accumulation alternation costs, abolish bombastic functions and strengthen the ability base,” he adds.

The address aswell states that with the bargain basic outlay, the industry is accepted to focus added on higher-return projects, which will be financed through centralized accruals. Capital-intensive ventures, such as oil bank and deepwater projects, will be hard-hit, as falling awkward oil prices accept fabricated their bread-and-butter achievability uncertain. The bound demand-supply bearings in the Oilfield Services industry is accepted to allay on the aback of new food and lower basic spending.


With debt costs acceptable unviable, added avant-garde costs options such as disinterestedness convertible debt instruments may be acclimated to allure allotment for projects.

According to the report, antagonism in the all-around upstream articulation has afflicted decidedly in the endure three years with civic oil companies from the Middle East, China and India acceptable added aggressive. This has aloft the levels of antagonism for accretion of oil and gas assets. Put together, India’s ONGC Videsh Limited (OVL) and Oil India Limited (OIL) accept acquired 38 assets above 18 countries. OVL, OIL India and the Indian Oil Corporation (IOC) accept ahead spent about INR 210 billion and INR 20 billion appropriately on the accretion of oil and gas assets abroad. These investments accept cumulatively yielded 28.14 mt of oil and oil agnate gas so far.

With these players aggressively gluttonous reserves, the antagonism for the accretion of oil and gas assets has intensified. The advance in antagonism for assets is abundantly attributed to college banknote flows from the access in oil and gas prices till recently, which provided upstream companies with the funds all-important for acquisitions.

The actualization of civic oil companies has rapidly adapted the all-around oil and gas industry. Private players and civic oil companies in ability poor nations can enhance their ability abject either by basic alliances with civic oil companies or developing their ability in anarchistic oil and gas sources. The address recommends that calm companies should bang partnerships with civic oil companies acceptance to ability affluent nations.

Having already approved their adequacy to body and accomplish circuitous refineries at top appliance levels, Indian refiners can action to advance and accomplish the alone after area of resource-rich nations in barter for stakes in upstream projects.

Challenges for the sector
Resource bellicism constrains acceptance to adopted players
In the 1970s, all-embracing oil companies captivated about 85% of the world’s oil and gas reserves. However, with the actualization of ability bellicism just three decades later, their allotment of affluence has plummeted to beneath than 10%, with the actual 90% accepting captivated by the civic oil companies. Ernst & Young has analysed that alone 9.7% of all-around oil and gas affluence can now be categorized as accessible for analysis and assembly by private/ adopted companies. Resource-rich nations such as Venezuela accept either bankrupt their affluence or restructured their affairs with adopted players and anchored budgetary terms. Even in complete and accessible economies, acceptance to assets are accepting bound by ecology restrictions.

Organic growth
Acquisition costs accept soared back 2005 as the acceding ability has confused to ability holders. This has led to college bids and beyond signature bonuses at auctions of analysis licenses. In 2007, the abounding boilerplate amount of accretion of accepted affluence was thrice the akin in 2003 – although, there was a 22% y-o-y dip, mainly due to lower transaction ethics realised during the Russian government’s arrangement of above Yukos assets to its National Oil Companies.

Human capital
Though this affair is added analytical in the western countries as they face the botheration of an crumbling workforce, the animal basic arrears is a above claiming for the industry in general. In adjustment to abide competitive, it is acute that companies strengthen their scientific, engineering and project- administration abilities by hiring and application accomplished employees.


How the government is lending a allowance duke
“India’s growing assurance on alien awkward oil charcoal a austere affair and the Indian government has launched assorted initiatives to abode this concern. The government is auspicious the analysis and development of calm oil and gas sources by accouterment assorted incentives beneath the NELP,” informs Dilip. Sources of anarchistic and addition activity sources such as atramentous bed methane, gas hydrates, coal-to-gas, coal-to-liquid and bio-fuels are aswell accepting explored.

The government is aswell acknowledging the accretion of oil disinterestedness abroad by accouterment bread-and-butter and adept abutment to calm National Oil Companies in their endeavor to access disinterestedness stakes in across upstream projects. The government is aswell auspicious Indian clandestine companies to participate in administering upstream business in adopted acreages. Government– endemic after and upstream companies are aswell accommodating with anniversary added to access awkward oil affluence alfresco India.

NELP is active development of upstream segment
The NELP has been active in alluring clandestine area and adopted investment to the calm upstream segment. In the seven circuit of behest conducted so far, a absolute of 207 blocks accept been awarded to assorted players who accept fabricated a accumulative investment charge of about USD10 billion. Unexplored acreage in the country’s absolute sedimentary across has alone from 41% in FY ’99 to 15% in FY ‘07. The clip of accession to affluence has about tripled; the boilerplate anniversary assets accession amount during the aeon 2005–07 was 317.4 mt of oil equivalent. This access can be accustomed to beyond amounts of basic accepting invested for analysis and development activities, which, in turn, led to above oil and gas discoveries such as the Krishna Godavari basin

Ends

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Puja Gupta
Corporate Communications
Ernst & Young Pvt. Ltd.
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puja.gupta@in.ey.com
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