With a volatile oil price continuing to impact the entire oil and gas industry, PESA’s 2016 Legal Seminar focused on the prospects for and issues surrounding mergers and acquisitions within the oilfield sector.
Featuring Osmar Abib, the Global Head of Oil & Gas at Credit Suisse LLC and Cravath’s George F. Schoen, the Seminar held on March 23rd gave attendees insights from two experienced and active M&A practitioners.
Mr. Abib provided an overview of the market conditions, including touching on an area that was a focus of discussion following the presentation: “why has M&A activity so far been so limited or sporadic?” Abib argued that much of the reason for this can be found in the volatility of energy prices. Potential partners or acquiring companies want to see some level of stability before making a move.
Further, the sector had already gone through a major wave of consolidation from 2000 to present, leaving a smaller number of opportunities, especially with smaller companies.
The role of debt in driving transactions came up during both Abib’s presentation and in discussion with the audience. The desire by some companies to address debt-related problems, especially if they are not in a position to access private capital or issue equity, is likely to serve as a catalyst for transactions once energy markets normalize.
Mr. Schoen, who has significant legal experience with M&A transactions both in and beyond the oilfield services sector, opened his presentation with a review of the factors influencing the timetable for closing an M&A deal. Regulatory requirements, both in the US and abroad, are becoming a more difficult hill to summit, with impacts for both parties in the deal.
Interim operating covenants, the guiding documents for corporate operations during the M&A closing period, are the most likely source of impacts. Equity awards, such as grants to employees, debt refinancing, and capital expenditures are topics frequently addressed by these covenants. They are also the most frequently impacted by regulatory delays in closing a transaction.
Both parties should use foresight in negotiating and drafting these covenants to preempt as many potential issues as possible, according to Schoen.
In closing his presentation, Schoen walked attendees through the various alternatives to M&A, such as joint ventures, commercial alliances, or contracted partnerships. The benefits, and shortcomings, of each of these alternatives was discussed, with a focus on each parties legal responsibilities and requirements.
In many cases, especially in the oilfield, alternatives to M&A can result in a transaction between the two companies down the road, said Schoen.
Many thanks go to our speakers at this year’s seminar for their timely insights. Additional thanks to the co-chairs of PESA’s Legal Committee, Brad Eastman, Vice President Deputy General Counsel at Cameron, a Schlumberger Company, and Mark Wolf, Deputy General Counsel & Assistant Secretary, FMC Technologies for their work in putting together a truly exceptional panel and event.