JEDDAH — With record-level transactions in the first quarter, 90% of oil and gas executives now expect the global mergers and acquisitions market to improve in the next 12 months, according to EY's Oil & Gas Global Capital Confidence Barometer. Ninety-percent of oil and gas executives now expect the global mergers and acquisitions (M&A) market to improve in the next 12 months, according to EY’s Oil & Gas Global Capital Confidence Barometer (CCB). The CCB found that oil and gas companies represented the highest ‘deal-making appetite’ among all sectors surveyed, with 62 percent of executives intending to pursue M&A in the next 12 months. In the wake of increased M&A activity, 90 percent of oil and gas CCB respondents expect to see a corresponding increase in competition. Sixty-eight percent expect to continue going head-to-head with private equity (PE), particularly for pre-development upstream assets or later life mature assets. The report anticipates, however, that increasing activity among PE players and the adoption of more innovative transaction structures will drive upstream M&A in 2018. EY’s CCB also revealed that 90 percent of oil and gas sector executives viewed global economic growth as improving or stable. Oil and gas respondents cited inflation (49 percent) and market volatility (40 percent) as the biggest risks to investment plans. “An improving macro environment evidenced by indicators, such as oil price stabilization and continued growth in demand, along with economic discipline by OPEC and non-OPEC members, has raised confidence in oil and gas executives over the past six months, according to the latest edition of the Capital Confidence Barometer,” Andy Brogan, EY global oil and gas transactions leader, said in a note published on EY’s website. “However, there are headwinds. Oil and gas respondents cite rising inflation and market volatility as the biggest risks to their investment plans, as oil prices rise and oilfield services company look to renegotiate contracts at higher rates. At the same time, executives view political uncertainty and geopolitical tensions as their biggest risks to growth,” he added. “Policy is becoming harder to predict, and any increases in protectionism could have an impact on the efficient flow of goods and services among companies,” Brogan added. The oil and gas companies are being proactive in portfolio management, which is aligning with shareholder expectations, according to the survey. More than one-third of executives (35%) expect to focus their influence on divestments over the next 12 months. The CCB also found that more than half (56%) plan to divest underperforming assets or assets “that are prone to disruption within the next year, as they seek to streamline operations and increase agility in response to the changing landscape.” The survey aligns with the latest EY Oil & Gas Global Divestment Study, which found that 87% of oil and gas executives expect to divest within the next two years. And 90% plan to invest in improving operating efficiency and to address changing customer needs. Movement of assets is creating a robust oil and gas M&A market, and the focus on portfolio transformation has spurred activity and renewed confidence across the sector,” Brogan said. “Indeed, the latest EY Global Capital Confidence Barometer finds that 73% of oil and gas executives expect to complete more deals in the next 12 months compared with 37% just six months ago. “It isn't surprising, therefore, that 74% expect their M&A pipeline to increase in the next year. Because of increased M&A activity, 90% of of those surveyed expect to see a corresponding increase in competition. “Sixty-eight percent expect to continue going head-to-head with private equity (PE) particularly for pre-development upstream assets or later life mature assets,” according to the CCB. “The report anticipates, however, that increasing activity among PE players and the adoption of more innovative transaction structures will drive upstream M&A in 2018.” — SG