Law Firm: Expect More Oil Industry Bankruptcies, Mergers, and Acquisitions

Graham R. Lane, a partner at Willkie Farr & Gallagher, says low oil prices are encouraging opportunistic private equity acquisitions.

International law firm Willkie Farr & Gallagher LLP (Willkie Farr & Gallagher ) says that sinking oil prices will soon lead to oil companies and suppliers working toward more mergers, acquisitions, and even bankruptcies, ShippingWatch reports.

"In the restructuring business more generally – there has been an uptick in restructuring work, although not as much as some commentators have predicted given the prolonged depressed price of oil," says Graham R. Lane, a partner at Willkie Farr & Gallagher's office in London.

"We are actively involved in some live restructuring mandates

"Low oil prices are encouraging opportunistic private equity acquisitions; more sellers are coming to market as consolidation is encouraged in order to drive costs down."

The law firm says that developments in the oil market will become visible on three levels.

He says the first level is that oil companies will continue to cut capital expenditure and investments, with explorers and producers expected to scrap high cost and complex projects to focus on gaining exposure to low-cost projects by way of mergers and acquisitions.

The second level will see "ongoing opportunistic activity in acquisitions and mergers", with some oil services companies said to have already seen a significant amount of such corporate activity.

Finally, integrated oil companies, such as BP plc (BP) and Statoil ASA (Statoil), will see less activity, while some deals still reportedly being made in an effort to move down the cost curve.

With oil prices expected to remain low for at least the next five years, the law firm says that cost reductions and changes will become part of the oil companies' "new normal".

Steffen Pedersen, a partner at Wikborg, Rein & Co. (Wikborg Rein), has echoed Willkie Farr & Gallagher's predictions, saying, "the drop in the oil price will have significant consequences for the whole market."

"The banks have pulled out from many projects and left a portion of the market open to new players such as equity funds.

"So far we have not seen a lot of disputes but this is just the eye of the storm.

"At the end of 2015 and in the beginning of next year, we will be seeing a whole lot of disputes over companies that can't live up to their commitments," added Pedersen.

Last November OW Bunker's sudden bankruptcy sent shockwaves throughout the shipping industry.