M&A wave will hit Asian oil industry<\/p>\n
SINGAPORE (Reuters): A wave of mergers and acquisitions (M&A)
\nwill hit the Asian oil industry as profits shrink due to
\ncontracting oil demand in the next few years, a U.S. business
\nconsultant said on Tuesday.<\/p>\n
\"I can tell you a number of companies are now running numbers
\non (different) combinations,\" Michael Balladon, vice president at
\nA.T. Kearney for Asia oil and gas business told Reuters.<\/p>\n
\"Everyone has these numbers, it now comes down to the art of
\nthe deal.\"<\/p>\n
A.T. Kearney is a Chicago-based consultancy, which advises
\naround 30 multi-million dollar corporations based in Southeast
\nAsia and earned gross fees of $1.1 billion in 1997 for its
\nworldwide consulting.<\/p>\n
Balladon cited that the Occidental Petroleum Corp oil and gas
\nasset swap with Royal Dutch Shell Group announced last week was
\nthe continuation of a M&A wave.<\/p>\n
The process, he said, had begun with smaller deals last year,
\nwith British Petroleum selling out its Thai retail chain to
\nCaltex and the Shell\/Caltex management tie-up of their joint
\nventure refineries in Thailand.<\/p>\n
\"What we see is the strong buying over the weak,\" Balladon
\nsaid.<\/p>\n
Layering in relatively weak assets of someone else, will allow
\nthe winner to get even stronger as others pull out of the market,
\nhe said.<\/p>\n
\"The majors will become super-majors in Asia,\" he predicted.
\nThe drive behind the M&A wave will be shrinking profits as many
\ncompanies were very poorly managed and over-invested in the boom-
\ntime, Balladon said.<\/p>\n
Asian oil demand, which was forecast to grow at four to six
\npercent annually before the currency crisis, is now expected to
\nremain flat for the next few years.<\/p>\n
Balladon said that Japan, Asia's biggest oil market, will see
\nthe most severe restructuring and buy-outs.<\/p>\n
At least 20-percent of its 5.3 million barrels-per-day (bpd)
\nrefining capacity needs to be shutdown, he said, as investors
\nwill not rush in until they see actual value in Asian oil asset.<\/p>\n
\"Quality is the name of the game. I do not see a stampede\" to
\nbuy, Balladon said.<\/p>\n
\"The fire sale assets\" like that of the retail network in
\nThailand and South Korean refineries may also remain unsold and
\ngo bankrupt, he said.<\/p>\n
For buyers in Asia, there are sticky issues like hidden
\nliabilities and the difficulty of buying just the valuable assets
\nfrom an integrated oil company.<\/p>\n
South Korea's Hanwha Energy sold its power generation business
\nin late May but was still openly seeking bids for it's Inchon
\nbased 275,000-bpd refinery.<\/p>\n
Following the wave of asset consolidation, oil company's
\nmanagement styles will also undergo radical changes, he said.<\/p>\n
In the past, national price regulation regimes, have
\nencouraged many oil companies to have a country by country
\nmanagement style, he said.<\/p>\n
\"But sometimes, you can move products around the region faster
\nthan you can from one end of the same country to another. That
\nhas been a largely untapped benefit.\"<\/p>\n
Asian crisis had already prompted Caltex, a Chevron\/Texaco
\njoint venture to announce in June re-organization along business
\nlines from its current geographic focus, he cited.<\/p>\n
\"As region is maturing and liberalizing, there is a lot less
\nvalue in working the regulatory side of the equation and there is
\na lot more efficiency in management across the region,\" Balladon
\nsaid.<\/p>",
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