Latin America’s O&G sector outlook optimistic: White & Case
A less volatile market, privatisation programs, electoral reforms and new discoveries could all drive growth and M&As in the Latin America oil and gas (O&G) market in 2019 after a quiet 2018, according to a study by law firm White & Case.
Globally, the oil & gas (O&G) sector saw an increase in M&A in 2018, as oil prices rose throughout the first three quarters of 2018. However, the same cannot be said for the sector in Latin America and the Caribbean as, while the global total rose 23 per cent year-on-year to $376.5 billion, in Latin America the total dropped by 18 per cent to $6.3 billion.
However, with the steady recovery in the price of Brent Crude since a steep drop at the end of last year, the first quarter of 2019 saw a year-on-year value rise of 100 per cent, to $0.72 billion, up from $0.36 billion in first quarter 2018.
Should the price of crude remain steady, O&G firms in the region could undertake some of the structural changes seen in other regions, characterised by a new focus on downstream assets like refining, as well as a diversification towards alternative energy projects, according to the law firm.
The largest deal in the region last year points toward an uptick in confidence in the region, the law firm says. Swiss-based Transocean, the second largest offshore drilling contractor globally, acquired Cayman Islands-based Ocean Rig for $2.6 billion.
The offshore rig market has been slow to recover after the crash in the oil price in 2014 and the deal, Transocean’s second major acquisition in 2018, demonstrates confidence in oil prices and therefore in offshore projects, which are considerably costlier than onshore extraction.
Major offshore discoveries in Guyana are contributing to the renewed confidence. In April of this year, ExxonMobil announced its 13th offshore discovery in Guyana. The energy giant believes that its various wells in the Stabroek Block could produce more than 750,000 barrels of oil per day by 2025. Energy consultancy Wood Mackenzie has estimated that Guyana could become the second-largest oil producer in Latin America in the coming decade.
Brazil’s O&G sector looks set to recover this year, with deal value volume already having caught up with 2018, with deals worth $360 million signed in first quarter.
In Argentina, the government of President Mauricio Macri has sought to implement reforms to the O&G industry, including bringing gas prices more in line with market forces, which has attracted foreign investors, who are especially interested in the country’s promising Vaca Muerta shale fields. However, presidential elections will be held in October, which could see Macri lose to a less business-friendly candidate, the law firm says.
