By Emeka Anaeto, Economy Editor

There are indications that sustained decline in global oil prices and glut in the supply end is now pushing both multinationals and Nigerian companies to consider mergers and acquisitions (M&A).

File Photo: Crude Oil

This was contained in report by the Financial Times of London (FT) at the weekend which shows that for smaller oil firms, usually known as independents, to wade through the tough times successfully a new wave of industry consolidation is inevitable, as they struggle to remain afloat.

According to FT, ‘’several small oil companies are limping along, labouring under heavy debts and dwindling cash flows’’.The low oil price is already reshaping the industry landscape driving Royal Dutch Shell’s USD55 billion takeover of smaller rival BG Group, and triggered the fall of Nigeria-focused oil explorer Afren, which entered administration last month. More consolidations are therefore expected to occur in the coming months if oil prices continue to plunge further south.

Commenting on the report a top executive of one of the indigenous upstream oil companies in Nigeria told Vanguard that many of the locals are already talking to the stronger multinationals for take overs.

According to him ‘’With commodities’ prices hitting lows for the current decade, companies becoming even more focused on capital discipline, significant currency movements and access to capital being limited in certain quarters and increasing financial pressure on certain industry players, 2015 is likely to see a renewed level of M&A activity across the oil and gas sector in Nigeria as it is currently globally.

This activity is likely to include further takeovers among mid-cap companies, as well as the first “mega-mergers” for nearly a decade. Within the oil service industry, consolidation is already well underway, being all the more necessary due to the current contracting and pricing scenarios’’.

The oil company executive who said his company was hosting a business combination meeting with some foreign investors last weekend added ‘’it will also be interesting to see who the main buy side players will include, not just the International Oil Companies (IOCs) and National Oil Companies (NOCs) with access to liquidity, but also whether there will be a continued appetite for the sector more generally amongst the petro dollar based sovereign wealth funds, private equity houses and commodities houses. Hedge funds and other strategic players are also likely to be interested given the financial stress that we are increasingly seeing in the sector’’

The drop in global oil prices has inflicted massive pain on oil exporting countries, widening budget deficits and weakening currencies. Other than Nigeria’s plummeting finances, oil companies in the country’s oil and gas sector, as is the case with oil producers worldwide, have been forced to scale down on investments, slash their budgets and lay off staff as plunging oil prices takes a toll on crude oil exporting countries and industry operators.

Brent crude has more than halved since June last year, with the slide accelerating after the Organisation of Petroleum Exporting Countries’ (OPEC) decision last November not to cut output, despite a US supply glut and weaker than expected demand in Asia.

Brent sold at USD45.54 Tuesday afternoon, down 20 cents but still some way from its 2015 low of USD45.19, while US crude futures hit an intra-day low of USD41.43 close to their lowest since early 2009 – before picking up when they traded at yesterday’s close price of USD41.87 a barrel.