Maritime Strategies International recently reported that the offshore drilling sector is ripe for integration as it challenges the management of oversupplied and competitive markets, coupled with over-leverage balance sheets, weak liquidity and stressful finance. Said that.
Latest MODU [Mobile Offshore Drilling Units] MSI’s Market Report analyzes current sector downturns and states that OFS supply chains need to emulate integration trends in the E & P and downstream sectors and seek integration as soon as possible to secure a long-term future. I conclude.
M & A activity declined in 2020. Of the key components of the oil and gas value chain, oilfield services are the most severely affected segment, with 71 transactions in 2019 at $ 21 billion, compared to 28 transactions. Completed for $ 1.9 billion. Sectors with poor market fundamentals that are fighting low returns, credit losses, and erosion of market valuations.
Since then, the market has entered an early stage of recovery. Bid levels are rising, cutting-edge interest rates are rising, and expectations are high that the sector may move towards a modest growth period. Nevertheless, the need to adapt to new realities will continue to shed light on continuing to focus on overcapacity and return on investment capital in many areas.
“OFS integration is much more possible and necessary year after year. Analysts have long sought it, and the sector has responded with stubborn denials despite clear industrial grounds. “. Gregory brown, MSI Associate Director. “Although there is debate, transactions are rarely closed, and in most cases stock prices are significantly undervalued and are often viewed as not reflecting investment capital.”
This position may apply to approximately 80-90% of the world’s public OFS companies, as well as the private sector. The idea is that in order to survive in a market that is unlikely to regain the entire volume lost after 2014, we must give way to the broader reality of the need for integration.
This situation is not unique to the excavator and OFS sectors. The E & P market has long sought a pool of similar assets. The difference is that such transactions are now beginning to take place. Stock-to-stock trading at market prices, rather than big cash premiums, is a winning recipe for recent E & P trading on shale patches, most of which are considered positive and can be replicated in OFS- Includes drilling sector.
“There are two options for business integration. One is to kick the can out without doing anything, hoping that improved market fundamentals will help restore utilization, revenue and value.” Brown adds. “The other is to select assets that are stuck in more complex bankruptcy proceedings and take advantage of the distressed value to obtain high quality tonnage at low prices across generations.”
With the collapse of demand following the first wave of COVID infection, MSI sees a short opportunity for the sector to rationalize and enable structural change. Putting at least some of these distressed assets into the hands of well-funded players may be beneficial to upstream markets that still rely on high-value professional services provided by a small number of disappearing participants. not.
Source: WA
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