SINGAPORE (Feb 27): Amid lower transaction activity and valuation in the oil and gas industry, Singapore continues to be an attractive location for oil companies looking to set up streamlined trading functions, according to EY.

This is because the country sits in a region that is a consumption hub, it says.

This incentivises oil majors and national oil companies to continue focusing on the downstream segment, in particular, petrochemicals, retail and lubricants, it adds.

“As companies in Asia look to retain profitability across the value chain, there is increased focus on optimisation of processes and expansion into extended value chain, such as trading,” Sanjeev Gupta, EY Asia-Pacific oil & gas leader, says in a Feb 27 statement.

Last year, the total volume and value of mergers and acquisition (M&A) deals in the global oil and gas industry tumbled 17.7% and 10.8%, respectively, according to EY.

These came on the back of stagnant commodity prices, disappointing results and low returns, it says.

The lower transaction activity and valuation were also due to the rebalancing of portfolios towards gas-focused and downstream assets — away from upstream liquids — it adds. 

“The oil and gas deal environment continues to reflects uncertainty as the industry redefines its role and the value of its assets in the face of the growing transition to low-carbon and no-carbon energy,” says Andy Brogan, EY global oil & gas leader.

According to EY, global upstream M&A deal value was up 17.6% in 2019, thanks to two large deals.

Excluding that, however, global upstream M&A deal value would have fallen 37% last year.

Global upstream M&A deal volume was down 20% in 2019. 

This translates to an average M&A deal value of US$122 million, which is in line with the prior year.

In the global midstream segment, M&A deal volume and value dropped 20% and 27%, respectively, in 2019, according to EY.

It notes that mid-sized M&A deals of between US$1 billion and US$10 billion have subsided since their peak in 2017.

As for the global downstream segment, M&A deal value surged 43% to nearly US$124 billion in 2019, underpinned by a large deal, according to EY. 

However, M&A deal volume fell 10% last year.

Looking ahead, EY says environmental, social, governance and energy transition considerations will continue to be key themes for the deployment of capital this year.