The year-long lull in oil prices has forced companies to shift strategies and further consolidation in the energy sector could be on the horizon next year, according to experts.
The Mena region has yet to experience the levels of M&A activity that have hit international markets led by majors such as Shell and BP and the oil services firms Halliburton and Baker Hughes.
However, that is expected to change as the hydrocarbon sector continues to suffer from market volatility, according to Sebastien Henin, Abu Dhabi-based head of asset management at The National Investor. “I suspect that [consolidation] will accelerate in the upcoming year, especially as energy players that aren’t in good health try to acquire quality assets,” he said.
The oil rout has become a mainstay for more than a year with Brent crude prices falling by more than 60 per cent since last summer’s highs of US$110 per barrel. And while oil producers may be suffering most in the current market, some players in the petrochemical industry are using this as an opportunity to grow portfolios.
Mohammad Husain, the chief executive of Kuwait’s Equate Petrochemical, said at a Women in Industry event held in Abu Dhabi that amid the low oil price environment the firm “always has to be prepared for opportunities” in connection with potential mergers and acquisitions.
Equate is in the process of acquiring MEGlobal from Dow Chemical for US$3.2 billion.
Mr Husain would not comment further on the Dow acquisition, but said that more marriages in the petrochemical industry were a possibility.
As the four-day Abu Dhabi International Petroleum Exhibition and Conference (Adipec) kicks off with more than 85,000 expected to attend, many companies will also discuss ways of navigating and maximising costs during this difficult environment.
Ali Khalifa Al Shamsi, head of strategy and coordination at Adnoc – the host of the event – said that for Abu Dhabi's national oil company to grow in the current climate, tightening the budget was necessary. The group announced last week that it was seeking cost cuts of 25 per cent. "We need to assess our projects. We are doing similar work that the international companies are doing with the low oil price," he said.
The US company Occidental Petroleum is also looking to streamline some of its non-essential assets, including projects in the Mena region.
Speaking at the Women in Industry event, Vicki Hollub, senior executive vice president at Occidental in Abu Dhabi, said: “We’re going through a lot of changes as an organisation. We have made mistakes in the past, but we need to implement change.”
She said that her company was attempting to get a cost structure that could deal with such market volatilities, but that the industry as a whole needed a greater awareness about how to operate in times of economic turbulence.
“The problem with our industry is that we never figure out that it’s going to be volatile,” she said. “We need to view this as an opportunity to get the industry back to where it was 10 to 20 years ago, when we were making money in this kind of price environment.”
lgraves@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
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