Skip to main content
No Room to Grow, Independents Face a Returns Squeeze
Bracewell’s Alastair Young recently discussed with Energy Voice the obstacles facing new investment in the oil and gas sector with shareholders increasingly directing the focus on returning cash, rather than growth.
Young noted ESG concerns as an angle to some of the recent shareholder moves. “There is no one reason for this acceleration in shareholder activism and circumstances vary from situation to situation. That said, reasons sighted for increased shareholder activism over recent years include the increased perception of the importance of ESG matters for value creation and a company’s social licence to operate, a general rise in stakeholder capitalism, and socioeconomic trends.”
One motivating factor is likely to be where such tactics are used successfully. The result is “snowball effect” where more shareholders are emboldened to “to take up their own challenges with company boards,” Young added. He cited the success of Engine No. 1 in securing representation on the board of Exxon, despite having only a small number of shares.
In terms of alternative routes for companies attempting to grow, Young saw majors and the larger private equity houses as driving sales.
“On the buy-side, we are seeing competition for attractive assets mainly from independents of various shapes and sizes but, in part due to the funding challenges faced by smaller independents, we are seeing the growth of a small cadre of very large independents as compared to the picture a few years ago,” he said. “Deals are being funded by equity and healthy balance sheets, vendor loans, trader-based financings, pre-payments for offtake, as well as traditional bank lending.”
The larger independents can raise debt in the capital markets, Young continued. The “practicalities of deal certainty and execution have meant that bonds have only rarely been part of the specific acquisition finance toolkit. Growth is also increasingly arising by way of corporate consolidation with smaller and medium sized independents merging.”