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Ernst & Young Says Asia-Pacific Oil and Gas Companies More Likely to Divest

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by Jared Heng

Asia-Pacific oil and gas companies are more likely to divest than their global counterparts, accounting firm Ernst & Young said on Thursday.

Its Ernst & Young Global Capital Confidence Barometer has found that 42 per cent of Asia-Pacific oil and gas respondents are likely to divest over the next 12 months, up from 28 per cent six months ago.

Sanjeev Gupta, Asia-Pacific Transactions Advisory Services Leader for Oil and Gas at Ernst & Young, said: “Oil and gas companies expect divestment activity to increase significantly over the next 12 months. The percentage (of global oil and gas respondents) likely to sell assets over this period has risen from 20 per cent in April 2011 to 47 per cent in April 2012, highlighting that organisations are remaining conservative and focusing on their core business.”

“The top five countries Asia-Pacific oil and gas companies are investing in over the next 12 months are Canada, Indonesia, India, (the) United States, and Vietnam,” Gupta added.

Despite higher oil prices, improving access to capital, increasing economic optimism and a generally more favourable deal environment, oil and gas executives are still cautious about engaging in mergers and acquisitions (M&A), Ernst & Young noted.

In addition, the survey showed that more Asia-Pacific companies are interested in existing markets (56 per cent of respondents) than new markets (44 per cent) for M&A.

It also revealed that M&A activity is still most likely to be financed by cash.

Ernst & Young noted that the majority, or 69 per cent, of Asia-Pacific oil and gas respondents will only use cash for such activity, with risk aversion outweighing low interest rates.

Also, 89 per cent of Asia-Pacific oil and gas executives believe that the eurozone crisis has affected their business. Ernst & Young said 56 per cent of them are focusing on cost reduction or supply chain transformation to help offset the revenue and margin pressures and increased risks.

While impacted by the eurozone crisis, 37 per cent of Asia-Pacific oil and gas respondents said they are more likely to take advantage of opportunistic M&A, compared with 22 per cent for their global peers.