While international oil companies (IOCs) have recently dominated the mergers and acquisitions (M&A) landscape, national oil companies (NOCs) have largely remained on the sidelines, according to a recent analysis by Wood Mackenzie.
The report highlights a significant decline in international spending by NOCs, which has plummeted from over $30 billion per year between 2009 and 2013 to less than $5 billion annually from 2019 to 2023.
Consequently, NOCs’ share of global M&A spending has shrunk from nearly 50 per cent at its peak to under 5 per cent today.
“NOCs were once big spenders in international business development, but M&A spend has slumped in recent years,” stated Neivan Boroujerdi, director of corporate research at Wood Mackenzie.
He emphasised that despite this downturn, the current environment presents favourable conditions for NOCs to re-engage in international business development.
With attractive M&A valuations and NOCs’ financial ratings at all-time highs, the impetus for these companies to address strategic gaps through acquisitions is stronger than ever.
The report also notes a shift in motivations for NOCs, particularly those becoming increasingly privatised.
Their goals for foreign expansion are aligning more closely with those of IOCs, focusing on portfolio competitiveness and sustainability.
Boroujerdi anticipates that NOCs, particularly from Asia and the Middle East, may seize international opportunities to expand their operations.
Middle Eastern NOCs are poised to enhance their oil and gas production capacity and are expected to produce more by 2050 than they do today.
Boroujerdi remarked: “Middle East NOCs are well-placed to outlast other producers, but they do have areas of relative weakness, with portfolios overwhelmingly concentrated towards either domestic oil or gas.”
This concentration has prompted several NOCs, including Saudi Aramco and ADNOC, to initiate internationalisation efforts in search of diversification.
In Asia, the growing demand for energy, driven by booming populations and expanding economies, is outpacing local supply.
Wood Mackenzie forecasts a substantial oil and gas supply shortfall of 13 billion barrels of oil equivalent (boe) per annum by 2030, exacerbating the need for NOCs in these regions to reduce import reliance.
Boroujerdi noted that despite efforts to boost domestic production, resources are becoming increasingly costly and scarce, prompting a need for overseas resource acquisitions.
While the past year has seen notable oil and gas mega-mergers, Wood Mackenzie suggests that opportunities for NOCs to acquire remain abundant.
Greig Aitken, head of upstream M&A at Wood Mackenzie, pointed out that outside of North America, the upstream M&A market is relatively uncrowded, with only 200 transactions globally in 2023—the second-fewest in the last two decades.
He indicated that while some US corporate transactions have been costly, other international deal valuations remain subdued, presenting the potential for NOCs to engage in acquisitions.
Aitken concluded: “As companies across the industry refocus on oil and gas portfolios in response to a slowing energy transition, competition for acquisitions is likely to increase, driving up deal prices. In this context, being a fast mover could be advantageous.”
In summary, while NOCs have been inactive in the international M&A space in recent years, current market conditions and strategic motivations suggest a potential resurgence, particularly among Middle Eastern and Asian companies looking to diversify and secure resources amid growing energy demands.