Gulf Keystone Petroleum Limited (LON:GKP) has been named by Peel Hunt as one of the possible takeover targets for 2017 in the oil and gas sector.
The Kurdistan based oil producer – which was recently rumour to be the subject of Chinese takeover interest - is one of five companies deemed by Peel Hunt to have a sensible mix of asset quality and balance sheet strength.
Others are Serica Energy Plc (LON:SER), Faroe Petroleum (LON:FPM), Bowleven Plc (LON:BLVN) and Toronto listed Africa Oil.
Peel Hunt analyst Werner Riding does, however, note that the market has anticipated merger and acquisition activity in the sector for some time without it materialising.
“The widely touted wall of sector consolidation wasn’t a theme we saw much chance of playing out during the most recent downturn,” Riding said.
He points to a number of possible factors that have limited takeovers. Riding says that one major reason is that the asset portfolios of many listed exploration and production groups have simply lacked relevance for larger acquirers.
The analyst also reckons overly complex capital structures and balance sheet arrangements have in some cases presented headaches for potential buyers. Also the prospect of having to corral retail investor heavy shareholder bases was seen as a turn-off for acquirers.
Incumbent management have also played a role in some cases, according to Peel Hunt.
Riding reckons that some management teams, running possible takeover targets, have put their personal interests ahead of their shareholders. “The strength of will for self-preservation shouldn’t be underestimated as a potential deal breaker,” he added.
“To summarise, as a result of the various life-support measures that have been taken by many in order to survive, there hasn’t been much in the way of oil and gas sector corporate M&A.
“Most completed transactions have been at the asset level, where those companies with a sufficiently healthy balance sheet – and therefore in a position to consider selective inorganic growth – have taken advantage.”