Oil price turbulence creates "once-in-a-generation buying opportunity" for private equity

William Turvill
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Oil Prices Hit Historic High On Weak Dollar
The state of the oil industry creates "significant opportunity for private equity", according to Latham and Watkins (Source: Getty)

Oil price turbulence has created a “once-in-a-generation buying opportunity” in private equity, according to a new report.

PE Views, a report Latham and Watkins, notes that while many companies are "focused on pure survival", there are buyers willing to "bet on an eventual recovery".

Read more: Oil price volatility is holding back M&A in the industry... for now

“The prolonged turbulence in oil prices has brought cost reduction programmes, the shelving of projects, and insolvencies in the oil field services and exploration and production sectors - and has presented a once-in-a-generation buying opportunity,” the report said.

“Although many companies are focused on pure survival, there are buyers willing to bet on an eventual recovery. Indeed, the situation presents a significant opportunity for private equity, either alone or in partnership with corporates.”

Latham and Watkins said the “consensus that no significant price recovery is imminent could simplify parties' agreement on valuations”.

Read more: Shell could sell some North Sea assets

“Oil price stability will be key to consummating deals, especially in the upstream segment,” the report said.

“Sharp changes in price scuppers deals, as experience in [quarters three and four of] 2015 has demonstrated. The only way to mitigate the risk is to transact quickly.

“Sellers must structure their deals to minimise execution delay and completion risk. In a buyers’ market, simplicity matters.”

It added: “Consolidation within the oil field services subsector is widely anticipated and appears to be gaining momentum.”

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