The New Energy Game Changer: Mergers and Acquisition Strategies in the Oil and Gas Industry

Henrikke Haaland

Student thesis: Master thesis

Abstract

The mergers and acquisition activity level in the oil and gas industry contributes to over half of worldwide activity, where the current focus is on the unconventional oil and gas market in the United States. This is related to the shift in industry focus, where the unconventional shale oil and gas market has become extremely attractive. Companies worldwide are increasing their exposure to this market, giving rise to promising prospects not only in the United States, but worldwide. The underlying motivations of the acquisitions in the US unconventional market are to acquire technology, valuable oil and gas assets, and operational competence. This is primarily because acquiring technology and experience is viewed as a rapid, less-expensive and less time-consuming entry strategy when pursuing new markets. Competition to acquire target companies or assets has contributed to overestimating future market possibilities. Companies with strong financial flexibility dominate the market with their expectations that a long term investment strategy may eventually create synergies. The trends in the US market can be expected to shift over to markets where unconventional resources have been discovered, but not yet proven. This thesis investigates an acquisition completed in 2011 within the unconventional market. The underlying motivations of the acquisition are comparable to the overall market where technology, operational experience and the target company`s valuable assets are the main reason for the acquisition. The consolidation of the two companies will entitle the acquiring company to the target`s technology and employees, which in the emerging unconventional market is valuable. The price paid per share by the acquiring company was at the time of the acquisition above current trading price per share. To be in a position to comment on the price paid, a valuation of the target company was completed. The value of the target company is further concluded to be below the price of what the acquiring company paid. This underscores the motivations and the optimism in the current market where companies in need of technology and competence may overestimate future prospects when hoping to achieve future operational and financial synergies.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2012
Number of pages102