Dec 2016 - (TMI) GLCM GB Sector - M&A Guidebook

Cash Management Guide to

M&A for the Natural Resources & Utilities Sector

1 A Long-Term Partnership for M&A SuccessLance Kawaguchi, Managing Director, Global Sector Head, Global Banking Corporates, Global Liquidity and Cash Management, HSBC

3 The Implications of Global M&A for Corporate Treasury TeamsLance Kawaguchi, Managing Director, Global Sector Head, Global Banking Corporates, Global Liquidity and Cash Management, HSBC

5 CEPSA: Network, Trust, Integration, Client ServiceFernando González Romero, Head of Treasury, CEPSA and Blanca Goñi Gonzalez, Head of Global Liquidity and Cash Management Madrid, HSBC.

9 Oil and Gas M&A in Asia: Interesting Times for TreasuryDavid Andrada, Regional Sector Head – Natural Resources & Utilities, Global Liquidity and Cash Management, HSBC

12 Oil and Gas M&A in MENA: Something DifferentMona Alqassab, Regional Sector Head MENA – Natural Resources & Utilities, Global Liquidity and Cash Management, HSBC

14 Europe - Plentiful OpportunitiesLance Kawaguchi, Managing Director, Global Sector Head, Global Banking Corporates, Global Liquidity and Cash Management, HSBC

16 US Natural Resources and Utilities: High Activity, Hard Currency and TechnologyLance Kawaguchi, Managing Director, Global Sector Head, Global Banking Corporates, Global Liquidity and Cash Management, HSBC

18 Natural Resources and Utilities M&A Liquidity Management:Making a Smooth TransitionJennifer Doherty, Global Head of Commercialisation, Liquidity & Investment Solutions, Global Liquidity and Cash Management, HSBC

21 Treasury Present and Future: Natural Resources and Utilities M&A Lance Kawaguchi, Managing Director, Global Sector Head, Global Banking Corporates, Global Liquidity and Cash Management, HSBC

Published by

Treasury Management International LtdWaney Edge Barn, Foxhill Lane, Playhatch, Reading RG4 9QF, UKTel: +44 (0)118 947 8057Fax: +44 (0)118 947 8062e-mail: [email protected]: www.treasury-management.com

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Cash Management Guide to

M&A for the NaturalResources & Utilities SectorCONTENTS

TMI | SPECIAL REPORT 1

NATURAL RESOURCES & UTILITIES

Against the pressures ofplummeting energy prices andcompetitive and geopolitical

challenges on one hand, and the need toinvest in efficient extraction techniquesand sustainable energy on the other,corporations in the Natural Resources &Utilities sector have been quick torefocus and revitalise their corporate

strategy in recent years. One of the most significant outcomesof this has been exceptional levels of M&A as companiesdivest non-core assets and realign their supply chains.

A Long-Term Partnershipfor M&A Success

We offer dedicated resources torationalise and optimise cash andliquidity management structures.

by Lance Kawaguchi, Managing Director, Global Sector Head, Global Banking Corporates,Global Liquidity and Cash Management, HSBC

2 TMI | SPECIAL REPORT


This has significant implications for

treasurers, who typically need to work

against the clock to integrate or divest

businesses quickly to avoid business

interruption and gain rapid control over

group liquidity and risk. Furthermore, the

M&A process is often not simply a ‘one off’

project but a series of diverse projects that

need to be managed concurrently or in

rapid succession. To support treasurers

through these challenging times, HSBC has

put together a series of articles that together

comprise a Cash Management Guide to

M&A for the Natural Resources & Utilities

sector, providing greater visibility over the

tasks, and sharing experiences of our expert

team within the business, and those of our

clients to help treasurers overcome the

pitfalls and maximise success.

In the first two articles in this series, we

offer an overview of the M&A landscape in

the Natural Resources & Utilities sectors,

and identify some of the key cash

management issues that treasurers need to

consider when embarking on an M&A

integration or divestment project. This is

accompanied by a practical case study from

integrated energy company CEPSA

(Compañía Española de Petróleos, S.A.U.).

This describes the integration of Coastal

Energy, whose principal assets were in Asia,

a region in which CEPSA previously had

relatively little experience, and how CEPSA

and HSBC worked together to deliver a

successful integration project. These

articles will be followed in turn by features

that drill down on some of the M&A related

cash management challenges in different

regions, and some of the specific liquidity

issues that treasurers need to consider.

A key theme that permeates these insight

articles is the importance of a banking

partner with the experience and skills,

innovative and robust technology, and

quality and reach of network to support the

integration and divestment process. At

HSBC, for example, we offer dedicated

resources to rationalise and optimise cash

and liquidity management structures,

including managing the process of opening

and closing tens or even hundreds of bank

accounts. Key to the success of an M&A

integration project is to be able to process

transactions and information flows

seamlessly, securely and efficiently, so we

employ specialist ERP teams to connect our

systems to our customers’ ERP and treasury

management systems for straight-through

processing.

When corporations look for a cash

management bank, particularly a partner

that can support them through strategic

projects as well as day-to-day activities,

they need to trust in that bank’s ability to

support them in the long term, across their

geographic footprint. This level of trust is

one of the key reasons why corporations in

the Natural Resources & Utilities industries

choose to work with HSBC as their M&A

partner. We are committed to improving

our propositions through technology

investment and innovation, one of the

cornerstones of cash management

efficiency, as well as the strength of our

network. With cash management

positioned as one of the bank’s strategic

priorities globally, customers can be

assured of our skills, network, technology

and long-term commitment to supporting

their M&A transactions and facilitating

treasury’s contribution to success. �

We are committed to improving our propositions through technology investmentand innovation.



Despite a slight slowdown in 2015versus 2014, M&A activity in thenatural resources and utilities

sector is still running at exceptional levels.Looking ahead, there is expectation in theindustry that these activity levels willcontinue to increase over the next fewyears. This inevitably raises considerablechallenges in terms of post-M&A corporate

treasury reorganisation, for both acquirers and disposers ofassets. Lance Kawaguchi, Managing Director, Global SectorHead, GB Corporates and Infrastructure & Real Estate GroupGlobal Liquidity and Cash Management at HSBC examines thesechallenges and how best they can be addressed.

ConsequencesWhile M&A presents opportunity, it also begets substantial workload for

corporate treasury. Potentially hundreds of bank accounts have to be

opened and closed, data from differing ERP and treasury systems have

to be consolidated/normalised, numerous authorised signatories have

to be changed, liquidity structures need to be revised: these are just

some of the adjustments that are required post M&A.

The long history of M&A activity in the Natural Resources and

Utilities sector means that most participants are well aware of this

workload. Nevertheless, while they may plan and budget accordingly,

it is still a painful challenge that must be overcome - especially if there

has been an accumulation of legacy systems from earlier M&A

activity.

In common with many other sectors, Natural Resources and Utility

treasuries typically have very low headcount. Even if additional M&A

integration budget has been allocated, there will therefore still be

considerable pressure on treasury personnel who will have to on-board

the acquisition in addition to their existing day to day workload. A

similar situation applies to the treasury of the company disposing of the

asset. For instance, the bank accounts of disposed assets may have been

integral to a liquidity structure that will now require revision.

This combination of high integration workload and limited treasury

personnel leads many corporations to look to their banking partners for

solutions and assistance. One popular approach is ‘lift and shift’,

whereby processes and bank relationships are aligned with the existing

global or regional bank that is already servicing the acquiring entity. If

the acquirer’s existing treasury processes are already efficient and highly

automated, then this is probably the ideal approach. However, in order

for it to work effectively, much will depend upon the capabilities and

resources of the acquirer’s bank. As a minimum, they should be able to

match (or better still exceed) the functionality already available to the

acquired business. They should also have dedicated teams capable of

working up and implementing detailed project plans, while also

minimising any business impact during the transition period. Product-

specific technological capability is becoming increasingly important in

this space, so formally-qualified in-country specialists in major ERP and

by Lance Kawaguchi, Managing Director, Global Sector Head, Global Banking Corporates, Global Liquidity and Cash Management, HSBC

The Implications of Global M&A for Corporate Treasury Teams



treasury systems should also ideally be

available, as should specialists experienced in

migrating legacy technology.

However, in order to add real value, any

bank involved in this transition should also

be able to suggest and implement additional

improvements and efficiencies. This would

be important at any time, but has become

even more so given the increasing

involvement of financial buyers in M&A

related to the Natural Resources and Utilities

sector. According to IHS Markit1, in the oil

and gas sector during 2015, financial buyers

spent more than USD25bn investing in

acquisitions, joint ventures, and funding

private exploration and production (E&P)

companies. In metals and mining, financial

buyers accounted for 56% of the M&A deal

activity in Q2 2016, according to PwC2. These

financial buyers do not typically have in-

house cash management or treasury

expertise, so in order to make the necessary

efficiency improvements they look to suitably

skilled banking partners.

GeographyAnother important angle on post-merger

M&A integration is geography. Much of the

current activity in oil and gas M&A has

involved acquirers buying assets that are in

locations new and remote to them, such as

Asia. One important historical factor driving

this trend is the spin-offs that a number of

major integrated oil and gas players

conducted in 2012-2013. Activist shareholders

pressured these corporations to focus on E&P

and divest downstream assets, such as

refineries and petrol stations, as at the time

they were perceived as an inefficient use of

capital that generated sub-optimal returns.

However, the decline in the oil price has

boosted the profitability of the spin-offs, while

leaving the corporations that divested them

exposed. These pure E&P players have had to

respond by acquiring new assets that are

already in production in new locations, often

in Asia.

This adds a further challenge to acquirers’

treasuries, as they find themselves having to

integrate assets in unfamiliar locations in

remote time zones. This consequently places

a premium on the services of banks that have

the necessary network footprint and global

co-ordination skills to support this remote

integration.

TimeTime is also an important factor to post-M&A

integration, given that acquisitions are often

funded by capital markets or bridge financing

activity. This creates pressure to realise as

much internal liquidity as possible from any

new acquisition quickly in order to reduce

funding costs. There are a number of ways in

which banks can add value in this respect.

In a world where notional pooling is

decreasing in popularity as a result of tax and

regulatory changes such as Basel III and

potentially IRS Rule 385, and cash

concentration is becoming increasingly

popular. The ability to manage intercompany

loans is key specifically in an environment

where the structuring and record keeping for

these can be extremely demanding for

corporate treasury, especially when multiple

bank accounts and new loans may be

involved. If the partner bank has a

comprehensive intercompany loan

management solution, this will considerably

reduce the management overhead and

streamline the incorporation of new entities,

as well as helping to avoid any inadvertent

errors relating to thin capitalisation rules.

The quality of internal co-ordination within

the bank can also heavily influence integration

speed, particularly if the same bank is

providing advisory and/or funding for an

M&A deal (subject to appropriate observance

of Chinese walls and related governance

procedures). In this situation, considerable

time can be saved by efficient internal

handover, as integration planning can begin

quickly, minimising any post-M&A hiatus and

delays in accessing internal liquidity.

Cyclicality and the futureOne of the distinctive characteristics of natural

resources and utilities M&A activity is its

cyclical nature - periods of high merger

activity are typically followed by periods of

divestment, before the cycle then repeats.

There is currently no evidence to suggest that

this will not be the case again. Therefore, while

acquisition integration is currently front of

mind for many natural resources and utility

treasuries, it is worth remembering that the

process of asset divestment can be equally

painful from their perspective.

For instance, if a US-based corporation is

divesting some of its Asian assets to a

European corporation, it may have multiple

changes to make post-divestment. Signatories

on the remaining bank accounts may need to

be changed, intercompany loan

documentation may need to be amended and

structural or other changes may be required to

any liquidity management structures (e.g.,

one of the divested assets may have been a

major contributor to net liquidity).

As with integrating an acquisition, for thinly

staffed corporate treasuries the success of

these changes can be heavily influenced by

choice of banking partner. One that has all the

necessary technical and relationship

qualifications, plus long experience of

industry M&A cyclicality is clearly desirable.

ConclusionOne thing of which treasuries of natural

resources and utilities companies can be

reasonably assured is ongoing change driven

by corporate M&A and divestment activity.

Therefore, with treasury headcount in the

sector typically very low, the need for effective

external support from the right banking

partner is paramount. There is a growing

appreciation among corporate treasurers that

high-quality liquidity and cash management

advisory from their banking partner is of

strategic importance in M&A/divestment

situations, especially if it is efficiently co-

ordinated internally with other services, such

as M&A advisory and structured funding.

These skills can make a material difference

to the success of a merger, acquisition or

divestment, by streamlining processes,

increasing automation and reducing the time

needed to access available liquidity.

Furthermore, assuming the bank concerned

has a truly global network, it will be able to

deliver this consistently across multiple

locations that are remote from the

acquiring/disposing corporation. �

Notes1 http://blog.ihs.com/upstream-oil-and-gas-ma-deal-count-and-asset-transaction-value-plunged-in-20152 http://www.pwc.com/us/en/industrial-products/publications/forging-ahead.html



When a corporation makes an acquisition, one of themost urgent tasks for corporate treasury is obtainingvisibility and control of the acquired company’s bank

balances before incorporating those balances into existingcorporate liquidity management structures. So when Spanish oilmajor CEPSA acquired Coastal Energy, Fernando GonzálezRomero, Head of Treasury at CEPSA, immediately called HSBC.

Integrating a new acquisition is demanding enough for any corporate

treasurer, but when the acquired entity largely operates in a region of

the world unfamiliar to the acquirer, the challenges are of an altogether

higher order of magnitude. This was precisely the situation confronting

Fernando González Romero, Head of Treasury of CEPSA, in March

by Fernando González Romero, Head of Treasury, CEPSA and Blanca Goñi Gonzalez, Head of Global Liquidity and Cash Management Madrid, HSBC.

CEPSA: Network, Trust,Integration, Client Service

When Spanish oil major CEPSAacquired Coastal Energy,Fernando González Romero, Headof Treasury at CEPSA,immediately called HSBC.



2014. CEPSA was acquiring Coastal Energy,

which had its principal assets in Asia, where

CEPSA had little previous presence. The

immediate need was to gain visibility and

control of Coastal bank accounts held in

Thailand, Malaysia, Singapore, Canada, US,

UK, Mauritius, the Cayman Islands and

Bermuda, while the longer-term need was to

assimilate Coastal’s balances into CESPA’s

liquidity management scheme.

While this task was exacting, it is rapidly

becoming commonplace in the oil and gas

industry. A recent straw poll of 223 oil and gas

treasurers conducted by HSBC revealed that

65% regarded dealing with M&A activity as

their top priority. The remedy is to partner

with a global bank that has the physical

network and niche expertise to handle the

most complex global M&A integrations

efficiently.

Visibility and controlAs mentioned, the first priority for CEPSA’s

treasury in Madrid was to obtain visibility and

control of all Coastal’s HSBC bank accounts

worldwide in a very short time frame. In order

to do this, new transaction authorisers had to

be appointed for these accounts, which would

involve such tasks as providing proof of ID

plus complying with other bank Know Your

Customer (KYC) and Anti-Money Laundering

(AML) measures. By early 2014 CEPSA had

already made progress with this process itself

on a country by country basis, but the

demands of communicating with multiple

third parties in several languages around the

globe in various different time zones, plus

differing documentation and legal

requirements, were causing delays. In order to

expedite the transition, the task needed to be

tackled differently.

“It seemed clear that we needed to take a

different approach and ask HSBC to manage

the process on our behalf,” says Fernando

González Romero. “Ideally, they would handle

all the international communications with

their offices internally, while providing us with

a single point of contact and coordination here

in Madrid. They would express our needs to

their colleagues elsewhere, filter any requests to

us for information to minimise our workload

and keep us updated on progress.”

The account transition represented a

considerable challenge, as it involved more

than 20 bank accounts, in different currencies

and in seven different countries belonging to

various Coastal entities. Furthermore, several

key Coastal personnel were due to be leaving

the company post-acquisition. Therefore, the

whole transition process had to be completed

with new transaction authorisers in place

within three weeks if disruption to the Coastal

businesses was to be avoided.

CEPSA’s Treasury HO was assigned the

task of managing the account transition on

Friday March 28 2014. Fernando González

Romero immediately called HSBC’s Madrid

office requesting a meeting at the bank that

afternoon. At the meeting, Fernando and two

of his colleagues outlined the challenge to

Blanca Goñi Gonzalez, HSBC’s Head of Global

Liquidity and Cash Management in Madrid,

and her team. Fernando González Romero

says:

“Going into the meeting I had some concerns as

to whether it could be done. We had a three

week deadline to turn around an increasingly

demanding task. Additionally, the team dealing

with it until then, regardless of their efforts, felt

the degree of achievement of it's goals was not

satisfactory. During the meeting, it became clear

that the HSBC team understood the challenge

exactly, as well as how to deal with it. By the end

of the meeting I knew the target would be hit on

time, the building blocks of a plan had been

drawn up by HSBC during the conversation

and a fully committed team had taken a tight

grip on the challenge.”

The HSBC team started work immediately

over the weekend. A project plan was

produced identifying which documentation

was needed in each country and daily

conference calls were organised to update

CEPSA on progress. An important part of the

project was co-ordinating requirements

globally to avoid asking CEPSA for

unnecessary information.

The first priority for CEPSA’s treasury in Madridwas to obtain visibility and control of all Coastal’sHSBC bank accounts worldwide in a very shorttime frame.

Fernando González Romero

Blanca Goñi Gonzalez



“For instance, a particular jurisdiction might

require a certain form of ID for a new

authoriser, but another jurisdiction might

already have that ID on file,” says Blanca Goñi

Gonzalez. “Rather than unnecessarily request

the ID again from CEPSA we could simply

supply it internally. As quite a few of the

authorisers were already known to us here in

Madrid, we were able to speed things up

significantly in this way.”

Despite the very tight deadline, the project

was completed within the required three

weeks and Coastal’s day to day operations

were not affected. CEPSA was already using

HSBCnet, so the Coastal bank balance

information was immediately available to

CEPSA in Madrid via that.

“We were extremely impressed with how HSBC

resolved this important challenge on our

behalf,” says Fernando González Romero. “By

having a single point of contact, our needs were

consistently explained globally and our

workload was kept to the absolute minimum.

At the same time, we were briefed daily so we

could clearly see how things were progressing,

identify any bottlenecks and tackle them.”

Relationship expansion andliquidityThe success of the project prompted CEPSA

to expand its relationship with HSBC. The

company was using another bank for the

bulk of its international business, but for its

more remote locations it was keen to add

another network of accounts for resilience. It

awarded this business to HSBC and asked

the bank to open new accounts for Coastal

entities in locations such as Malaysia and

Singapore. In addition, it asked the bank to

develop a suitable regional liquidity structure

incorporating these new accounts along with

existing Coastal accounts in Asia.

A statement of work, itemising all the

necessary steps, was prepared by HSBC and

agreed by CEPSA. The statement of work was

then developed into a formal project plan,

that was also agreed, and a dedicated HSBC

implementation manager was appointed

based in Singapore working with the team in

Madrid. Once work started, the

implementation team was largely working in

parallel with CEPSA’s legal advisers who

were guiding the company on the most tax

efficient legal structure. Accounts were

migrated/opened in accordance with this,

which included accounts for a new

Singaporean holding company.

Sensitivity to cultural differences between

CEPSA and Coastal personnel was an

important part of the project. CEPSA was

keen that Coastal staff did not feel alienated

in any way and that HSBC should also be

aware of country-specific cultural nuances

during the implementation. The bank’s

substantial physical network presence and

local awareness meant that it was able to

deliver on this, both generally and

specifically. An important specific example

was that the bank has teams of experienced

and qualified ERP specialists that operate in

individual countries rather than just

regionally. In CEPSA’s case, the need was for

SAP specialists and the bank already had

these in place in both Thailand and Malaysia.

This meant that the risk of anything being

lost in translation between a regional

specialist based in, say, Singapore and in

country teams was negated.

Liquidity management structureThe fact that CEPSA previously had limited

exposure to Thailand and Malaysia meant

that it needed a banking partner who fully

understood all the local business practices

and regulatory requirements. This was

particularly important in the case of liquidity

management, because of the regulatory

challenges of some of Coastal’s primary

markets, especially Thailand.

The bulk of Coastal’s revenue in Thailand

was in Thai baht (THB), in the form of a

contract with PTT - the national oil company.

Thai baht is a restricted currency and cannot

be freely moved out of the country. Coastal’s

PTT contract was initially for exploration and

prospecting, but once oil started to pump, the

scale of its baht income increased

significantly. In view of the currency controls

on Thai baht, this would over time result in a

major accumulation of currency that could

not directly participate in CEPSA’s global

liquidity management structure.

HSBC devised a bespoke hybrid solution to

this problem. The bank would provide a back-

to-back loan in USD, secured against CEPSA’s

Thai baht balance onshore. HSBC Thailand

explained how the regulations would impact

such a structure and provided guidelines to

CEPSA on any approvals that would be

CEPSA needed a banking partner who fullyunderstood all the local business practices andregulatory requirements.



required. The available USD balance,

generated through the loan, could then be

moved to Singapore where the regional

header account was held by the CEPSA, and

from there could be combined with CEPSA’s

liquidity globally. In addition to the back-to-

back loan, HSBC applied preferential interest

rates to all CEPSA’s USD (the corporation’s

functional currency) credit and debit balances

globally, as well as any THB balance that

remained in Thailand. The solution is now

ready to go live, but has not yet done so

because low global oil prices have for the time

being reduced the flow of baht accumulating

in Thailand.

This solution was only possible because of

HSBC Global Markets’ substantial activity and

liquidity in Asia, combined with its expertise

in devising sophisticated liquidity

management solutions that are also fully-

compliant with local regulation. In addition,

the bank’s ability to take a global view on a

client relationship meant that it was able to

offer far more attractive interest rates than

were previously available to Coastal on a per

account basis.

A similar arrangement was deployed for

Coastal’s businesses in Malaysia and

Mauritius, the only difference being that the

bulk of activity in these countries was already

USD-denominated, so there was no need for a

back-to-back structured loan. Balances across

USD accounts in these countries will be swept

on a daily basis to the regional header account

in Singapore. The associated solution to

manage the resulting intercompany loans is

provided by HSBC through its Global

Liquidity Solutions.

“When the structure is fully live, we will

concentrate US dollars from across Asia into

the header account held by the new Singapore

entity,” says Fernando González Romero.

“From there they will be routed to our global

USD pool header held by a Dutch company in

the Netherlands. Once the oil price recovers -

and unless HSBC have come up with an even

better solution for Thailand in the meantime -

this USD concentration will include the back

to back USD/THB loan arrangement.”

ConclusionCEPSA was facing a situation that is

becoming increasingly commonplace for

oil and gas companies. M&A activity results

in an acquisition that must be integrated as

efficiently as possible, as quickly as

possible. Successfully accomplishing this

requires a banking partner armed with the

right people, client focus, network, local

knowledge, expertise and global solutions.

“I am delighted that we were able to assist

CEPSA in meeting a very demanding

deadline that was operationally critical for

them, plus devise an effective liquidity

management structure for the company in the

challenging environment of Asia,” says Lance

Kawaguchi, Managing Director, Global

Sector Head, Global Banking Corporates,

Global Liquidity and Cash Management,

HSBC.

The integration of Coastal Energy has also

marked a further stage in the relationship

between CEPSA and HSBC. “Before we

started the initial transition of authorisers for

the Coastal Energy accounts, CEPSA felt

operationally close to HSBC on an

international basis,” says Fernando González

Romero. “Overcoming this challenge has

proven the value of the HSBC Cash

Management team. While it exposed its

members (and HSBC) to an uncertain

outcome with a very demanding goal, the

excellent results achieved with the transition

and the subsequent liquidity structure solution

for Asia have further cemented and expanded

CEPSA’s relationship with HSBC.” �

CEPSA

CEPSA (Compañía Española de Petróleos, S.A.U.) is an integrated energy company withmore than 10,000 employees around the globe. CEPSA operates at every stage of the oilvalue chain: petroleum and natural gas exploration and production, refining, thetransport and sale of crude oil derivatives, plus petrochemicals, gas and electricity.

The company was established in 1929 as Spain’s first private oil company and is nowthe country’s fourth largest industrial group in terms of turnover. As a result of itsflexibility and ability to adapt, CEPSA has become a benchmark company in its sector inSpain. Progressive internationalisation of its activities means that the company now hassignificant business interests in more than fifteen countries around the world, includingAlgeria, Brazil, Canada, Colombia, Malaysia, Mauritius, Panama, Peru, Portugal andThailand, and sells its products worldwide. CEPSA is wholly owned by InternationalPetroleum Investment Company (IPIC), which is the Abu Dhabi government’s vehicle formaking investments in the energy sector.

M&A activity results in an acquisition that must beintegrated as efficiently as possible, as quickly aspossible.



In common with other regions, the decline in oil prices hasbeen a major factor driving extensive M&A activity in Asia.While post-M&A integration planning is clearly desirable

anywhere, in Asia the sheer diversity of regulation and businesspractices adds additional complexity.

Perhaps unsurprisingly, the upstream oil business in Asia has been

heavily impacted by the substantial fall in crude prices. Many capital

intensive projects in the region began when oil was above $100 per

barrel, but at current price levels are not viable. This has triggered a

spate of divestments of assets now considered non-core. According

by David Andrada, Regional Sector Head – Natural Resources & Utilities,Global Liquidity and Cash Management, HSBC

Oil and Gas M&A in Asia:Interesting Times for Treasury



to a report by law firm Eversheds and

Mergermarket1 56% of Q1 2016 divestment

activity was motivated by this. The decline

in prices has also severely hit demand for

oilfield services, so this is another subsector

seeing appreciable M&A activity.

This rationalisation and streamlining

extends beyond just business operations

into areas such as corporate treasury. Here,

there is now heavy emphasis on reducing

working capital requirements and adapting

to an environment where financing is far

more limited than previously. As the

prospect of oil prices remaining lower for

longer gathers credence, there is also a

growing realisation that quick fixes are

insufficient. Making process improvements

that will deliver savings in the long term is

therefore becoming a greater priority.

The key differencesNevertheless, achieving these

improvements immediately post-M&A is no

easy task in Asia. For a multinational

acquiring assets in Asia is very different

from elsewhere given the multiplicity and

probable unfamiliarity of regulations,

currencies and business practices.

Furthermore, much Asian M&A activity

currently consists of large non-Asian

multinationals acquiring smaller assets in

the region. Therefore, the business being

acquired typically has treasury operations

that are considerably less sophisticated than

the acquirer's. Instead of an ERP or treasury

management system (TMS), spreadsheets

and manual processes are a distinct

possibility. Smaller acquisitions will

commonly have their primary banking

relationships with local banks.

This poses a number of problems for the

treasuries of large multinational acquirers.

Apart from the technology mismatch,

treasury personnel will be accustomed to

very different working practices. Plus, a

multinational acquirer is likely to have

treasury policy specifying that only a

relatively small number of global banks may

be used. None of these points is particularly

easy to deal with, but there is the additional

complication that the acquirer is unlikely to

have personnel with the necessary in-depth

expertise to address them.

Partners and planningAs a result, this is a situation where a

combination of a partner bank with global

coverage and scrupulous planning can win

the day. In this regard, the importance of

the extent and granularity of the bank's

network cannot be overemphasised:

coverage from just a few major centres in

Asia will not be sufficient. The nuances that

can be lost in translation between someone

sitting in Singapore or Hong Kong and

someone in Thailand can prove extremely

expensive. A bank that can offer first-hand

knowledge and presence within each

country can prove invaluable in avoiding

unpleasant surprises. Blithely insisting that

one size can fit all when it comes to treasury

is a strategy very unlikely to succeed in Asia.

Before any implementation begins, it is

prudent to conduct a thorough survey of

the acquiree's current treasury practices.

What sort of bank connectivity is in place?

How do they handle FX, payments,

collections and liquidity management?

Then there is also the local financial

infrastructure to consider in terms of

clearing system functionality, costs and cut

offs. This discovery phase will help to

inform transition planning that is both

appropriate and more likely to be

successful. For instance, a major post-

acquisition priority for many treasuries will

be obtaining visibility of the acquiree's

flows, but while global best practice might

be to stream data from MT940 bank

statements, the banks the acquiree is using

may not be connected to SWIFT.

Acquiring assets inAsia is verydifferent fromelsewhere given themultiplicity andprobableunfamiliarity ofregulations,currencies andbusiness practices.



Strategies and toolsOnce the decision to integrate financial

processes is taken, there are three broad

categories of implementation strategy

currently being used in Asia:

� Simple integration: effectively just

cloning existing processes. This is

probably the easiest of the three options

and minimises any business impact.

Apart from centralised visibility and

account mandates, everything continues

as before.� Simple integration with improvement:

similar to simple improvement, but also

incorporating quick fixes, such as

process alignment. Perhaps also

introducing payment initiation and bank

statement reporting via SWIFT.

Currently this is probably the most

commonly used integration strategy

employed in Asia.� Lift and shift: complete transformation.

Ultimately the most desirable end state

for many multinationals, but typically

the most complex and costly option. Also

has broader implications such as tax and

optimum choice of incorporation

structure. Not much in evidence in Asia

at present, as the current environment

makes it difficult to cost-justify to the

boardroom.

The right choice and implementation of

strategy depends heavily upon the early

involvement of corporate treasury and

banking partner; this point is increasingly

appreciated at the most senior management

levels. Another important potential success

factor is the availability of cloud based

treasury systems. These can be extremely

valuable as an interim solution for M&A

integration, as they incur none of the capital

and risk overheads of a major ERP or TMS

implementation, while providing similar

functionality and a far shorter timeline. The

best cloud treasury solutions also support

multiple connectivity options.

ConclusionAll the signs are that Asian oil and gas M&A

activity is likely to remain strong for the

foreseeable future. Even for the largest

multinationals, this may create a resource

stretch for their treasuries. Support from a

suitably qualified bank can help in alleviating

this burden, as well as mitigating any issues

around time zone differences. But in Asia,

the core point remains access to local

experience and expertise. Combining that

with early treasury involvement and careful

planning will significantly increase the

chances of a successful outcome. n

David AndradaRegional Sector Head – Natural Resources & Utilities,Global Liquidity and Cash Management, HSBC

David Andrada is the Asia Pacific Regional Sector Head forNatural Resources & Utilities in HSBC's Global Liquidity andCash Management division. He is responsible for executing onHSBC’s sector strategy in the region covering the Oil & Gas,Metals & Mining and Power & Utilities sub-sectors.

He joined HSBC Singapore in September 2014 and bringsfifteen years of corporate banking experience providing cashmanagement, trade finance and treasury solutions tocorporations in the region. Prior to this role, David held severalfront office roles with HSBC and Bank of America Merrill Lynch(BofAML) in Sydney, Australia, more recently as BofAML’s AsiaPacific co-head for Global Industries Group where he wassuccessful in advising companies establish global liquidityplatforms, centralised payment factories and other sharedservice treasury functions.

Prior to David’s banking career, he worked in the industry forPetron Oil in their Treasury division working for Petron’s GroupTreasurer. David holds a Bachelor Degree in Commerce and alsotook post graduate studies at The University of Sydney BusinessSchool.

All the signs are that Asian oil and gas M&Aactivity is likely to remain strong for theforeseeable future

Notes1 'Searching for solutions: Energy asset sales in

Asia Pacific' June 23, 2016



MENA M&A activity has gained traction over the years,with performance primarily driven by the favourabledemographic profile of the region. Oil and gas is

leading this regional M&A activity, with USD 3.6 billion recordedin 2015 alone1. However, there are some differences in the natureof the activity and the way in which post-M&A treasuryintegration is being handled.

The first quarter of the year in MENA saw overall M&A deals totalling

USD6.99bn, well above the USD5.99bn and USD4.52bn seen in the

corresponding quarters of 2015 and 20142.The Government of Abu

Dhabi alone has announced three consolidations over the past 3

months, two involving Oil & Gas companies. The latest has been Abu

Dhabi National Oil Company (ADNOC) to integrate two of its offshore

oil firms amid the drop in oil prices; Abu Dhabi Marine Operating

Company (Adma-Opco) and Zakum Development Company (Zadco)

will be merging to form a new entity, Prior to that, the merger of

National Bank of Abu Dhabi (NBAD) with First Gulf Bank (FGB) was

announced, as well as Mubadala with International Petroleum

Investment Company (IPIC). Distressed asset sales constituted a

significant part of the activity driven by a tightening of capital

availability in many countries, where governments are getting priority

access to available capital, thus leaving less for private enterprises.

While this is in line with some other regions, an important difference is

that the bulk of M&A activity is intra-regional, with some 80% of deals

being within MENA3.

Most active countriesMuch of the M&A in MENA is concentrated in just a few countries, with

UAE being the clear leader, as it has been for the past couple of years,

while Kuwait is not far behind4. Despite its size, Saudi Arabia is less

active in M&A, as the focus there is currently more on social and

economic reforms and reducing reliance on oil in the wake of the Saudi

Vision 2030 announced earlier this year. Other countries in MENA such

as Oman and Bahrain are far less active, with Bahrain still dealing with

uncertainty in the aftermath of its credit rating downgrade. Political

instability and struggling economies makes North Africa an unattractive

option for foreign investors, particularly in Egypt with the difficulty of

securing USD funding and continuous devaluation of the Egyptian

Pound. Many have already planned their exit strategy out of Africa, with

those remaining deciding to invest in more politically stable countries

such as Tanzania.

AsiaWhile intra-regional activity may represent the bulk of current MENA

M&A deals, there is a clear desire among National Oil Companies

(NOCs) in the region to acquire assets in Asia that will enable them to

tap into the potential demand growth there. As these national oil

by Mona Alqassab, Regional Sector Head MENA – Natural Resources & Utilities, Global Liquidity and Cash Management, HSBC

Oil and Gas M&A in MENA:Something Different



companies already have ample crude

resources, their primary interest is in

acquiring Asian refining and processing

assets that can be used to satisfy demand in

the region. Typically policy and regulation in

many Asian countries does not allow

majority control of this type of asset by

foreign entities, so in practice any acquisition

will only be partial, with an Asian

government-owned entity holding a majority

stake in most cases.

Treasury integration in MENAA common intention among those acquiring

assets within MENA is to improve their

technology when doing so. This particularly

applies to areas such as oilfield services

technology, but also in other areas such as

treasury.

In general, treasury technology in MENA

lags behind global standards, but in some

areas this is changing rapidly in a tight

liquidity environment. While certain countries

remain wedded to manual processes and

spreadsheets or are still in the early stages of

ERP integration, NOCs across the Gulf

Cooperation Council (GCC) countries are

moving quickly to close the gap, with RFPs for

activities such as SWIFTNet implementations

and liquidity management becoming

increasingly commonplace. Among these

more forward looking organisations, there is a

degree of competition to catch up with global

best practices.

However, despite this thirst for best

treasury practice and technology, when it

comes to the treasury integration of acquired

assets, the general approach among

acquirers in MENA is more cautious. This

applies both to intra-regional M&A and to

NOCs acquiring assets in Asia. A major

concern here is reputational risk. Especially

among government entities, punctual

payment of vendors and employee salaries is

an extremely high priority. Therefore

transitioning banks and/or treasury

technology and processes is often perceived

as highly risky in this context. As a result, it is

not uncommon for an acquisition's treasury

to continue with its existing banks,

technology, personnel and processes for

some considerable time after it is acquired.

While this incurs duplicate costs for the

acquirer and may be sub-optimal in terms of

efficiency, this is often seen as preferable to

the reputational damage of possible late

payments, at least for the first 12 - 24 months

post acquisition.

Treasury integration in AsiaIn the case of NOCs from MENA integrating

the treasury operations of Asian acquisitions,

there are additional practical concerns.

Differences in treasury practices, unfamiliar

currencies and regulation, as well as time zone

differences (cut-off times) are seen as further

reasons for caution. Therefore, the more

common practice in this regard is to acquire a

stake in an entity, but retain the existing

treasury operation completely unchanged and

leave the day to day treasury operations to the

equity partner (typically an Asian National Oil

Company or Government Related Entity). The

extent of involvement may be limited to

quarterly repatriation of funds and monthly

reporting. However, in some countries in

MENA (such as UAE and Qatar) this is starting

to change with daily reporting being provided

via SWIFT MT940s either directly to the

company’s own SWIFT address or centralised

via a third party service provider.

ConclusionIn view of the anticipated high volumes of

M&A activity in MENA, the question of

integrating acquisitions' treasury operations is

not going to disappear. Despite the

reputational concerns, this is driving a

growing appreciation that the inefficiencies

and costs of maintaining duplicate treasury

functions can and should be addressed,

especially during the current economic slow-

down and low oil price environment. In

practice, the risks of treasury integration could

be minimised with the support of a partner

bank that has extensive cross border

integration experience and the necessary

network to provide sufficient depth of local

support. �

Mona Alqassab Regional Sector Head MENA – Natural Resources &Utilities, Global Liquidity and Cash Management, HSBC

Mona Alqassab is the Middle East, North Africa & TurkeyRegional Sector Head for Natural Resources & Utilities in HSBC'sGlobal Liquidity and Cash Management division. She isresponsible for executing on HSBC’s sector strategy in theregion covering the Oil & Gas, Metals & Mining and Power &Utilities sub-sectors.Mona joined HSBC UAE in 2014 and brings 10 years of

international banking experience in coverage, transactionalbanking and flow business for Corporate and Project Financetransactions. Prior to this role, Mona held several regional frontoffice roles within BNP Paribas based out of UAE and Bahraincovering Energy & Commodities clients in MEA. Mona holds a Bachelor Degree in Computer Science from

Newcastle University, UK and a Masters in Finance from DePaulUniversity, Chicago, U.S.A.

Notes1 http://www.khaleejtimes.com/region/mena/gcc-entities-dominate-ma-activity-in-mena2 Gulf News (04/04/2016) http://gulfnews.com/business/sectors/banking/kuwait-uae-lead-gcc-acquisition-

deals-in-2016-first-quarter-1.17037043 Emirates Business (16/05/2016) http://emirates-business.ae/mena-ma-market-to-remain-steady-in-2016/4 Gulf News (04/04/2016) http://gulfnews.com/business/sectors/banking/kuwait-uae-lead-gcc-acquisition-

deals-in-2016-first-quarter-1.1703704



The Natural Resources and Utilities(NRU) sector in Europe isapproaching a tipping point.

Conditions for certain buyers appear idealand there is no shortage of distressedassets looking for a new home. Yet a varietyof factors have so far delayed what seemedto many an inevitable rush of M&A activity.It seems increasingly likely that this

situation will change in the coming year and M&A levels will risesubstantially1. This in turn will create an intense period of activityfor corporate treasuries. Many of these will find that while someof the treasury consequences of European M&A activity aresimilar to those applying elsewhere, others are rather different.

Opportunities abounding...From a macro economic standpoint, Europe currently looks

particularly attractive to those from outside the region seeking to

acquire Natural Resources and Utilities (NRU) assets. This is especially

true of US buyers, who have benefited from the euro's slide against the

US dollar since early 2014. At the start of that period, EUR / USD stood

at ~1.40, while for much of the past two years it has oscillated around

~1.10. The recent rise in US interest rates has more recently provided

additional USD support. Therefore, EUR-denominated NRU assets

appear relatively cheap to US buyers.

Elsewhere, while the EUR / RMB exchange rate has been less

favourable to Chinese buyers, this does not appear to be damping

China's outbound M&A activity. Total Chinese outbound M&A by

value in the first six months of 2016 almost exceeded total M&A for the

whole of 2015. By the end of August 2016, China had completed 173

global outbound deals totalling USD128.7bn. While these figures relate

to M&A across all sectors, leading Chinese oil companies CNPC,

Sinopec and CNOOC have all publicly indicated that they are

considering global M&A2 and 3.

...but not yet takenYet despite these favourable conditions, actual European M&A activity

has been far below the levels many predicted for 2014 and 2015, with

several factors likely to be influencing this situation4. Continued

weakness in commodity prices appears to have created a situation

where buyers are waiting for the bottom of the market, but there is

ongoing uncertainty as to whether that point has yet been reached. At

the same time, sellers seem to have been basing their desired sale

prices more on internal expectations rather than external realities.

However, as pressure continues to mount, it seems credible that this

gap between buyers and sellers will close and that perhaps just one

major European acquisition will be sufficient to trigger a cascade of

others.

Nevertheless, despite no shortage of private equity and other

investors looking to acquire inexpensive European assets, debt

financing of such assets has become more challenging. Several banks

have reduced or stopped providing financing for businesses in the oil

and gas sector. In addition, a major focus across the sector at present is

the reduction of debt ratios. This is partly being driven by the current


Europe - PlentifulOpportunities



emphasis of rating agencies on ensuring that

companies are well balanced from a debt

standpoint.

Consequences for treasuryChanging operating modelsNRU company treasuries globally have had

to make significant changes to their

operating models as commodity prices have

fallen. In a sense, these treasuries have been

encountering the same cost cutting pressures

that their counterparts in other sectors

encountered immediately post 2008. Quite

apart from the consequences of any M&A

activity, there has been a more general need

to streamline processes, increase automation

and improve efficiency. In the case of any

merger or acquisition activity, this need is

even more pressing as there will be

considerable duplication of processes,

personnel and technology that needs to be

quickly rationalised. Apart from cost

reduction, this situation also creates

considerable operational risks that need to

be rapidly mitigated.

Dealing with this situation successfully

requires careful planning and swift

execution. It is also an area where the right

banking partner can significantly alleviate

the workload by sharing industry best

practice, as well as with practical

implementation support. This would apply

in any circumstance, but is especially

germane in the case of companies from

outside Europe acquiring European assets.

While European business and treasury

practices may be relatively familiar to US

corporate treasuries, the same may be rather

less true of many Chinese NRU companies.

Co-ordinated support from a banking

partner at local level in both China and

Europe that also leverages global expertise

and network can appreciably enhance

outcomes.

Visibility, liquidity and fundingOne of the most time-critical tasks post-

acquisition is gaining visibility and control of

cash across the acquired entity. There are

various ways in which this can be achieved

and the strategy chosen will be driven by a

mixture of corporate policy and what is

actually practicable. One useful solution is to

use a suitable cloud-based treasury

management system (TMS). The best of

these already have extensive integration built

in for a wide range of ERP, accounting and

treasury systems. This makes quick access to

a new acquisition's bank account and

financial information both possible, scalable

and relatively painless. In some cases, the

advantages of such a cloud-based TMS may

mean it is also acceptable as a permanent

solution for additional tasks such as

automated cash flow forecasting and

providing equity and debt instrument

information.

While on the subject of debt, this is an area

that is likely to require attention after any

M&A activity in the context of liquidity

management. The acquirer may have been

strongly cash-positive pre-acquisition, but

the costs of the acquisition may have

significantly changed this situation and/or

added external debt. This makes not just

cash visibility, but also cash mobilisation and

robust liquidity management an imperative -

especially in view of the importance rating

agencies are attach to debt/equity ratios5.

Any review of liquidity management may

also need to examine the acquirer's currency

mix, which may have changed and need

rebalancing. In the case of Europe,

standardisation of regulation relating to

cross-border flows within the region and

initiatives such as SEPA may make regional

liquidity management less challenging from a

technical perspective than regions such as

Asia. Nevertheless, the acquirer may still have

to make significant structural changes in

order to balance its debt position with the

need to ensure that the acquired entity retains

sufficient cash to fund day to day operations.

Banking relationshipsAcquiring an asset may also involve

acquiring (at least in the short term) new

banking relationships, which given the long-

term consequences of 2008 for many banks

in Europe may have important treasury

policy implications. Many larger acquirers

are likely to have minimum credit quality

criteria for banking relationships as part of

their treasury policy that may not be met by

newly-acquired assets' existing banks.

Transitioning all accounts to a new bank

will typically take at least several weeks,

which creates a need for more immediate

interim measures. One tactic is to set

maximum acceptable balance levels for the

acquired asset's existing bank relationships

and automatically sweep all cash above those

levels to the acquirer's preferred partner

bank until a more permanent solution can be

established.

Early engagement with your existing

banking partner can add significant value

during this time of change. Given the

commonality of event driven change your

bank can be a key source of ideas on how to

address other challenges, what other

companies have done to address certain

points and also connect you with these

companies if appropriate. Your existing

partner can then provide guidance on a more

formal future by way of a tender. Not only

will this help frame the alternatives available,

it will ensure competitive fees and charges

apply to your business.

ConclusionIt seems increasingly likely that a new wave

of NRU M&A activity will soon arrive in

Europe. The weakness of the euro versus the

US dollar plus the quantity of distressed

assets available make that almost inevitable.

If this flurry of activity occurs, NRU corporate

treasuries will become even busier and

resource-pressured than usual. That will

result in many such treasuries looking for

banks capable of supporting them in quickly

integrating assets in potentially unfamiliar

locations that are using equally unfamiliar

technology and processes. �

Notes1 www.bakermckenzie.com/en/newsroom/2015/06/global-ma-and-ipo-activity-to-accelerate-until-2__2 www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-csg-

2015-china-outbound-ma-spotlight-brochure-en-151111.pdf3 www.kwm.com/en/knowledge/downloads/china-oil-gas-shale-market-opportunities-challenges-201511124 www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-energy-and-resources-oil-and-

gas-m-n-a-report-2016.pdf5 www2.deloitte.com/content/dam/Deloitte/ro/Documents/energy-resources/us-er-crude-downturn-2016.pdf



In comparison with regions such asEurope, the Natural Resources andUtilities (NRU) sector in the US has

been a hive of M&A activity. Outbounddeals have been aided by a strong dollar,while apparently domestic activity hasactually often also involved the acquisitionof global assets outside the US. Anotherstrong US M&A theme has been NRU

companies acquiring upstream shale assets, which contributedto 45% of deals in the upstream segment in the second quarter of2016. From a treasury perspective, these trends have had variouschallenging implications, including the need to manage newregions, types of business and currencies.

Plenty happeningNorth America was the leading region for M&A across the NRU sector

during H1 20161. Seventy-two out of 136 upstream deals (representing

45% of total value) involved assets located in the US, with Canada in

second place on 29 deals (worth 21% of total value). Midstream deals

have also been dominated by the US and Canada, while nine of the 11

downstream deals in 2015 were in the US and the largest by value in

Canada.

US NRU companies have also enjoyed the advantage of a strong

dollar when making acquisitions outside the US. Since the downturn

in oil and natural gas prices started more than two years ago, there is

no shortage of distressed assets available for such acquisition. This is

reflected in the statistic that there have been a number of NRU

bankruptcy filings around the globe during 2016, with more expected

to follow.

The US has also seen an appreciable amount of nominally domestic

acquisition, where both parties are US-headquartered, but where the

bulk of the assets actually being acquired are distributed globally.

However, in view of the reduced appetite of some of the banks that

have historically funded larger mergers, a more commonplace activity -

especially among oilfield services companies - is smaller-scale

consolidation, with companies cherry picking assets more for bolt-on


US Natural Resources andUtilities: High Activity, HardCurrency and Technology



acquisition. The intention is that this sort of

acquisition will make the acquirer more

competitive as the current down cycle shifts

into growth.

US oilfield services companies have also

been acquiring technology assets. This is a

reflection of continuing low oil prices, which

is driving a need to reduce the production

costs for upstream assets that will otherwise

be uncompetitive in comparison with some

major Middle Eastern producers. Examples

of these also include technology companies

expert in areas such as video and geological

analysis that can reduce exploration costs.

Treasury strategiesUnfamiliar territoryUS NRU treasuries face broadly similar

challenges to NRU treasuries elsewhere, but

there are some unique points of emphasis.

The strength of the US dollar is encouraging

international acquisition in addition to the

global assets acquired through domestic

takeover mentioned earlier. As a result, there

is an increasing likelihood that US NRU

treasuries will have to deal with acquired

assets in unfamiliar countries, plus contend

with similarly unfamiliar currencies,

business practices and regulation.

Dealing efficiently with this type of

situation is considerably easier if the treasury

can depend upon the support of a banking

partner with a global network and

commensurate experience and expertise.

This can smooth the post-acquisition path

considerably, particularly with regard to

matters such as cash visibility, liquidity

management and de-risking acquired bank

relationships.

Cash visibility and liquidityObtaining visibility and control of the

acquired entity's cash and bank accounts as

quickly as possible is critical for a number of

reasons. Probably the most obvious is

operational risk. Authorised signatories may

be leaving post-acquisition and if they are

not replaced in time, serious disruption can

result. There are also more generic fraud and

control risks to consider, plus of course

treasury policy compliance.

Apart from these operational risks, cash

visibility is also essential for identifying any

accessible pockets of surplus liquidity within

the acquired entity. The acquiring entity will

have either assumed debt or used existing

internal liquidity (or both) to fund the

acquisition and it is therefore imperative to

pay down debt as quickly as possible and/or

restore a previously cash-positive position.

Cloud-based treasury management

systems can prove invaluable here, as the

best of them will already have built in

connectivity to myriad ERP, accounting and

treasury systems. Particularly where an

experienced primary banking partner is

involved, these systems can provide a very

quick interim route to cash visibility and in

some cases may be also be appropriate for

more permanent adoption.

The information that can be derived from

such systems is integral to effective liquidity

management. It will quickly become

apparent which liquidity from within the

acquired business can be centralised with

existing corporate liquidity and which needs

to be retained within the business for day to

day working capital.

A useful additional source of working

capital alleviation post-acquisition is the

merging of procurement card programmes.

These programmes are increasingly

commonplace in the NRU sector and apart

from their individual cash flow benefits,

attractive rebates are available in the market

based on total spend. Hence the added value

of merging programmes wherever possible.

Banking relationships and treasury modelsAs mentioned earlier, the strength of the US

dollar makes overseas acquisitions

increasingly cost-effective for US NRU

companies, increasing the chances that their

corporate treasuries will have to cope with

unfamiliar currencies, business practices and

regulation. In addition, there is the question

of how to handle the existing banking

relationships of any acquired entity post-

acquisition. In some regions, there is a

reasonable likelihood that these banks may

not satisfy the credit criteria of the acquirer's

corporate treasury policy or risk appetite

more generally. In view of the time it will take

to transition bank accounts to a new provider

and for the acquired entity's customers to

update their vendor list bank details, some

form of short-term remedy may be required.

One possibility is to enable automated

sweeps of all funds above a certain level to

one of the acquirer's existing relationship

banks.

In the longer term, it may be advisable to

consolidate all the accounts and

cash/liquidity business with an existing cash

management bank. However, some form of

post-acquisition review of banking

arrangements may be advisable, as the

changed corporate structure might warrant

an additional banking partner for

contingency, lending, or other reasons.

The current protracted down cycle in oil

and commodity prices already warrants a re-

evaluation of existing NRU treasury models.

However, this need for review becomes even

more pressing post-M&A, as there may have

been major changes in liquidity, funding

needs, currency mix, tax structure and

geographical coverage, plus many other

factors. There is also the consideration that

the combined organisation now has dual

treasuries, policies/process and costs.

Rationalising this situation is important for

cost and operational risk reasons, but needs

careful planning and execution to ensure

success. Again, this is an area where a

suitably qualified banking partner can

provide invaluable support.

ConclusionUS NRU companies currently benefit from

US dollar strength that reduces the effective

cost of overseas acquisitions at a time when a

large number of distressed NRU assets are

available. However, the challenge for US

NRU treasuries (in addition to the generic

challenges applicable to many NRU

treasuries elsewhere) is the unfamiliarity of

the environment in which some of these

potential acquisitions operate. In this

situation, being able to count upon a global

network bank that can support any

integration, irrespective of time zone and

geography, can represent the difference

between success and failure. �

Notes1 www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-energy-and-resources-oil-and-

gas-m-n-a-report-2016.pdf



W hile the number of M&A deals in the naturalresources and utility (NRU) sector has been slightlylower than previous years, it is expected to increase

in the coming year1. This anticipated increase makes it morelikely that post-M&A integration challenges will also become anincreasingly common issue, as NRU treasuries are more likely tofind their organisation involved in some form of M&A activity. Ifso, how well they address the resulting liquidity managementchallenges - both pre- and post-M&A - will be a major element indetermining the overall success of the transaction.

Getting your own house in orderPerhaps one of the biggest priorities for treasury when there is a higher

probability of their company being involved in M&A activity is ensuring

by Jennifer Doherty, Global Head of Commercialisation, Liquidity & Investment Solutions, Global Liquidity and Cash Management, HSBC

Natural Resources andUtilities M&A LiquidityManagement: Making aSmooth Transition

The more efficient and scalableyour own structure and the sooneryou can understand youracquisition the better.



that existing cash and liquidity management is

as good as possible. An acquisition may

already have excellent cash and liquidity

management techniques, or it may be entirely

at the other end of the spectrum. If the latter,

then the acquirer's treasury will have a major

project on its hands that will be exponentially

harder if it also has to put its own house in

order at the same time. Therefore, the more

efficient and scalable your own structure and

the sooner you can understand your

acquisition the better.

There is additional pressure to review and

optimise existing liquidity management

arrangements now, because in addition to

higher levels of sector M&A activity, NRU

treasuries have only comparatively recently

been affected by tighter liquidity conditions.

Treasuries in most other sectors felt the

liquidity impact of the 2008 financial crisis

almost immediately and had to respond

equally immediately by improving cash

visibility, control and centralisation. At the

time, the NRU sector was under much less

pressure as a period of relatively high oil and

commodity prices had left many companies

with sufficient internal liquidity. Since the

decline in oil prices began in early 2014, this

situation has changed, as witnessed by the

number of oil and gas business failures, with

more than 100 oil and gas companies around

the globe filed for bankruptcy during Q4 2014-

Q2 20162.

Increasingly, treasuries are turning to their

banking providers to help ensure that they

have the most effective solutions and

technology available in place, both generally

and as prelude to possible M&A activity. A

suitably-qualified banking partner will not

only be able to provide context on what is

considered industry best practice and

systems, but also do so in a global context.

This benefits the immediate situation, but

may also prove invaluable if the acquired asset

has operations in unfamiliar locations.

Settling the transactionGiven cost/availability constraints on external

funding sources (see ‘Funding and cost

reduction’ below), there is considerable onus

on treasuries to maximise the usage of

trapped cash pre-M&A so it can be used as an

internal funding source. Given the right

banking partner, treasuries may find that even

cash in demanding locations is actually more

legitimately accessible than they realise. The

obvious corollary to this that invisible cash is

unusable cash and so there is a concomitant

need to maximise the visibility of available

funds (both 'trapped' and otherwise). Again,

the right banking partner can do much to

assist here to provide a single window view of

cash, even where some balances are with third

party banks in remote locations.

If an acquirer is partly or completely

funding M&A with internal resources, then an

important consideration when it comes to

completing the transaction is the location and

availability of the necessary cash. Where does

the company have its off-balance sheet cash

invested? How liquid are the assets? What call

times or formal notices are involved when

redeeming assets? In a department typically as

lightly-resourced as treasury, checking and

double-checking all these points in the run-up

to an acquisition (in addition to day-to-day

treasury tasks) can be extremely demanding.

The obvious concern is reaching the point of

remitting the funds for an acquisition and

discovering that a significant proportion

requires notice that hasn't been given, or

some similar hitch.

Apart from pulling together all the required

cash to pay for an acquisition, there are

various other elements that could potentially

cause last minute problems, such as

unfamiliar cut-off times or correspondent

bank capabilities. Remember, there are no

SLAs for receiving international money

transfers. Ensuring funds arrive on the correct

value date is also extremely important given

the quantum. Closer to home, the funds paid

are often required to flow through different

legal entities for tax and ownership purposes

in a sequential order, particularly if an in-

house bank is maintained by the acquirer.

An experienced bank that has assisted with

multiple M&A transactions in the past is

ideally placed to help avoid these types of

issues. It is therefore advisable to ensure that

key banking partners are fully briefed and that

communication lines are continually open in

the run-up to any M&A settlement,

particularly as a delay in settlement can have

considerable consequences.

Funding and cost reductionAnother strand to the recent liquidity pressure

on NRU treasuries is the reduced availability

of external financing from financial

institutions. Some banks have reduced their

exposure to the sector, or withdrawn from the

market altogether. The consequent

supply/demand impact has increased the

need to maximise the use of existing internal

liquidity to fund M&A activity. This might

require additional refinements to existing

liquidity structures, as effort/benefit ratios

may well have changed. An untapped pocket

of liquidity might previously have been

considered not worth the labour of

centralising. That may no longer be the case if

the cost gap between internal and external

liquidity sources has widened.

Even if external financing is available,

the net result post-M&A is much the same.

External debt needs to be serviced and

ultimately repaid as quickly as possible,

plus there is also pressure from the current

emphasis by rating agencies on corporate

debt/equity ratios. This means that an

acquirer's treasury needs to obtain

visibility and control of an acquired asset's

cash as quickly as possible post-M&A,

partly to minimise operational risk, but

also so that any available cash can be

There is considerable onus on treasuries tomaximise the usage of trapped cash pre-M&A so itcan be used as an internal funding source.



rapidly identified and centralised.

Two important steps in this centralisation

process are the possible development of

new regional structures for an acquisition

and the merging of those (or existing)

structures with any liquidity structures the

acquirer already has. If the acquisition

currently has fragmented regional cash,

then there is an obvious opportunity to

centralise this cash regionally with a

suitable structure. Cash in this can then be

merged as desired with any existing regional

or global structure via cash concentration.

Planning for the unknownPrior to M&A, the acquirer's treasury has only

limited information on the liquidity situation it

will be inheriting. The accounts of the entity

being acquired/merged will give some idea of

overall liquidity, but not where it is actually

located, how accessible it is, or the quality of

the processes and technology currently used

to manage it.

However, if treasury has just conducted a

rigorous review of its own liquidity

management pre-M&A, it will already have a

comprehensive check list and investigative

process to hand that it can immediately re-

deploy post-M&A with the acquired asset.

This will assist in quickly gathering all the

required information to inform any decisions

around migration and implementation. It

will also add considerable value when it

comes to any project planning with banking

partners. A suitable bank will also be able to

add value in this context by filling in certain

gaps. This is especially useful if the acquired

asset operates in unfamiliar locations -

especially if those locations have unfamiliar

regulation that also impacts possible

liquidity management strategies.

A global network bank can also assist in

working with the acquired asset's local finance

personnel to obtain additional information, as

well as with any subsequent implementation.

This can make it far easier to target resources

and effort accurately to identify and centralise

available liquidity in an optimal manner -

especially if there are factors such as local

regulation to consider. A key point here is how

flexible and sensitive the bank is to the specific

situation. What is most definitely not desirable

is a bank that imposes its own project plan

and timeline on both acquirer and acquiree.

Particularly in the context of possible

rationalisation, this sort of insensitivity can be

extremely counterproductive. By contrast, a

bank that adopts a consultative approach will

help to ensure a positive outcome.

Conclusion: the ongoing liquidity journeyPre- and post-M&A liquidity planning and

action are only part of an ongoing iterative

process. It is perfectly possible that a step

taken as a result of on-boarding an

acquisition throws up an opportunity at a

higher level, perhaps such as the creation of a

new regional liquidity pool. Subsequent

changes in the business environment might

also drive further changes as effort/benefit

ratios in relation to liquidity capture shift.

Whatever the specific circumstances, this

evolutionary process can be facilitated by a

close working relationship with a partner

bank that can leverage a strong pedigree in

liquidity management and the NRU sector,

plus global network and expertise. �

Jennifer DohertyGlobal Head of Commercialisation, Liquidity &Investment Solutions, Global Liquidity and CashManagement, HSBC

Jennifer manages the Global Liquidity and Investments advisoryteam at HSBC. She leads an international team of liquidityadvisors who are responsible for structuring complex clientsolutions across multiple geographies and jurisdictions. Aseasoned professional with 13 years’ banking & financialservices experience, she has extensive experience of managingproduct portfolios and developing bespoke solutions forcorporate and institutional clients. Based in London, Jennifer isresponsible for defining our liquidity product propositions toensure we meet and exceed our clients’ needs.

Prior to joining HSBC, Jennifer held a number of liquidityrelated roles at Bank of America Merrill Lynch. Before that sheworked in the core liquidity team at the Royal Bank of Scotland.

Notes1 http://www.bloomberg.com/news/articles/2016-04-24/low-crude-prices-to-spur-more-m-a-deals-in-oil-gas-

after-slump2 http://www.researchandmarkets.com/research/wk4xk8/global_bankruptcy

A global network bank can also assist in workingwith the acquired asset's local finance personnel toobtain additional information.



Natural Resources and Utilities(NRU) is currently one of themost dynamic sectors for M&A

globally, with most regions experiencinghigh deal levels. This has knock-onimplications for NRU treasuries that needto be addressed both now and in the longerterm. Lance Kawaguchi, ManagingDirector, Global Sector Head, Global

Banking Corporates, Global Liquidity and Cash Management,HSBC, examines these implications and some potential treasurystrategies to address them.


Treasury Present andFuture: Natural Resourcesand Utilities M&A

The global M&A environment inwhich NRU treasuries mustoperate is highly active at present.



Treasury Present

How does M&A activity impact treasury? M&A activity affects corporate treasury in

multiple respects. In the general sense, it

results in a palpable increase in workload.

More specifically, it will involve handling a

raft of bank relationship and bank account

management changes, such as the

opening/closing of potentially multiple

accounts. One of the consequences of this is

the need to change signatories and bank

mandates in accordance with the new

corporate leadership structure, possibly to an

extremely tight timeline.

The overall liquidity position of the

corporation may also change appreciably.

Treasury may have to adapt rapidly to a shift

from the corporation being cash-positive to

cash-negative. Even if that is not the case,

treasury may have to manage the orderly

release of off-balance sheet liquidity from

investment instruments with contractual

notice periods in order to partially or

completely fund the acquisition up front.

Alternatively, if an acquisition is funded by

external debt, there will be time pressure to

release as much surplus liquidity as possible

from the acquisition to pay down this debt

and minimise interest costs. More generally,

existing liquidity structures may need

substantial adjustment to accommodate new

markets and currencies, or the removal of

those markets and currencies in the case of

divestments.

On the technology front, treasury may find

itself post-acquisition having to contend with

legacy systems and/or multiple ERP systems

(and versions thereof) plus their integration

with existing technology. In the case of

divestments, treasury technology may

require cloning to enable the independent

operation of the divestment.

The importance of treasury involvement inM&AApart from the immediate consequences for

treasury of M&A activity, there are more

general corporate reasons for involving

treasury as early as possible when such

activity is in prospect. One example is the

need to ensure existing financial operations

are not disrupted during the M&A activity,

such as a divestment's ability to pay suppliers

and operate normally from its first day post-

divestment. By the same token, an

acquisition will have legacy bank accounts

and infrastructure, in which liquidity may

remain trapped until treasury has full

visibility and control.

Many treasuries have also started to

assume a broader risk management role,

beyond purely financial risk. Therefore, early

treasury involvement will also improve

treasury's ability to advise on operational

risks before, during and after M&A activity.

NRU M&A: Global themesThe global M&A environment in which NRU

treasuries must operate is highly active at

present, with the decline in oil prices since

early 2014 a major factor. One response to

weaker oil prices has been for companies to

streamline their operations wherever

possible, such as through the sale of non-

core assets and operations. In several cases,

buyers of these assets are looking to use any

acquisitions as an opportunity to diversify

and access new markets. Two examples of

this would be Chinese NRU corporates

investing in Europe and US NRU corporates

buying Asian assets.

Certain subsectors within NRU have had

to adapt to considerable financial changes.

For instance, oil field services companies

have seen a major fall-off in business due to

low oil prices and thus reduced

exploration/production activity, which has

also resulted in an associated increase in

their working capital requirements.

More generally, the global NRU

environment has placed further liquidity

performance pressure on treasuries as the

‘lower for longer’ outlook on oil prices has

become more widely accepted. This is an

area that treasuries will typically always seek

to improve, but at present the pressure to do

so is particularly acute. However, at the same

time, cost-cutting is a major priority in the

NRU sector so treasury teams are lean and

are very likely to remain so: doing more with

less is now the new normal.

NRU M&A: Regional themesIn addition to the global themes outlined

above there are also a variety of region-

specific themes that have a bearing on

regional M&A activity, as well as corporate

treasury.

In Europe, the relative weakness of EUR

versus USD makes inward investment in

NRU assets attractive. Nevertheless, this has

not as yet translated into greater M&A

activity for a number of reasons, such as the

gap in perceived valuations between buyers

and sellers. Interestingly, although EUR has

been relatively strong versus RMB, this has

not depressed interest from Chinese buyers.

For US NRU corporates, strong USD

obviously makes acquisitions more cost-

effective, and some are treating this as an

opportunity to diversify into Asia by

acquiring assets there. Other trends include a

focus largely on upstream deals

(representing some 45% of all North

American deals during H1 20161) and the

acquisition of technology assets.

By contrast, NRU M&A activity in MENA

has been largely intra-regional, with

USD6.99bn of deals in Q1 20162, although

there has also been a trend of national oil

companies acquiring assets in Asia. Much of

the activity in MENA has originated in UAE:

for instance, the government in Abu Dhabi

The global NRU environment has placed furtherliquidity performance pressure on treasuries as the‘lower for longer’ outlook on oil prices has becomemore widely accepted.

saw three corporate consolidations in the

past three months - two of them involving oil

and gas. Kuwait has not been far behind UAE

in terms of NRU M&A volume, while in Saudi

Arabia the focus has been more upon

reducing reliance on the oil and gas sector.

More treasury-specific trends have been a

drive for some NRU corporates in the region

to enhance their treasury technology, which

typically lags that seen outside MENA.

In Asia, Chinese national oil companies

have made clear their continued interest in

outbound investment, with the One Belt One

Road initiative3 being a case in point.

Elsewhere, inward investment has seen a

number of non-Asian MNCs seeking to

diversify by acquiring smaller assets in Asia.

From a non-Asian treasury viewpoint, the

region remains challenging, with diverse

regulations, currencies and business

practices adding complexity to any on-

boarding and integration of acquisitions.

Post-M&A treasury considerations Once a merger or acquisition has closed,

treasury will be faced with a number of

challenges. One of the highest priorities is

gaining visibility and control of bank

accounts and relationships. If this can be

achieved, then the operational risks

associated with personnel movements are

minimised.

In addition, treasury will then also be well-

positioned to access any surplus cash within

the acquisition. This is crucial when

acquisitions are funded by capital markets or

bridge financing as it enables debt to be paid

down faster and interest costs minimised.

A further consideration for treasury is that a

merger or acquisition often does not stop

there. It is not uncommon for periods of M&A

activity to be followed by periods of

divestment. This is a further reason for

treasury to be well-briefed on the detail of

potential M&A activity. If a business unit

within an acquisition is already identified as

non-core for early disposal, treasury clearly

does not want to waste scarce time and

resources on incorporating it into liquidity

structures.

Another potential issue for treasury post-

M&A is unfamiliar geography. An acquisition

or merger may involve new regions or

countries where regulation, currencies,

financial infrastructure and business practices

are unfamiliar. Under these circumstances

treasury will have to surmount a steep

learning curve if potential problems or errors

are to be averted.

Leveraging bank expertiseUnfamiliar geography is a classic example of

where partnering with a suitably qualified

cash management bank can prove invaluable.

If the bank has a global network presence, it

will be able to provide detailed information

and solutions to accommodate local nuances.

The challenges associated with understanding

new markets and the rules associated with

managing bank accounts and liquidity therein

can thus be minimised.

At a strategic planning level, if engaged

early, this type of bank can also add value to

the process of developing objectives, such as

any transformation/optimisation agenda. The

same global network expertise can be equally

valuable in project managing the integration

of bank accounts.

Finally, if the bank concerned can also

provide ERP and treasury management

system expertise, then there is also the

opportunity to maximise the planning and

execution of automation in the project. In a

cost-pressured environment, this can be a

significant benefit.

Treasury FutureDigitisationLooking to the future in the NRU treasury

space, one theme that stands out is greater

digitisation. This has the potential to

transform M&A activity for the better, by

compressing timelines, reducing costs and

minimising labour-intensive paper processes.

One obvious example of this is account

management, which is usually a major activity

post-M&A. At present, a lengthy manual

process of on-boarding with new banking

providers has to be undertaken. Digitisation of

the platforms and processes involved in on-

boarding, could go a long way towards

remedying this. This could simply take the

form of electronic submission of



It is not uncommon for periods of M&A activity tobe followed by periods of divestment.

documentation or enhanced systems that can

make more extensive use of information

already held in order to minimise duplication

of effort.

Know Your Customer (KYC) processes are

another area that can prove a bottleneck post-

M&A. Again digital technology and data

management can be used to improve the

experience from a corporate perspective. In

addition, regulatory changes can be more

effectively incorporated in modern technology

platforms, ultimately simplifying and

improving the on-boarding experience.

Another recent innovation that can assist here

is collaborative KYC, with KYC.com and the

SWIFT KYC registry being two examples. This

can help to automate the KYC processes,

including the verification of companies,

people and ID documents. A single

centralised secure database that maintains

KYC profiles is far more efficient than

individually delivering documents to various

banking partners.

Nevertheless, taking maximum advantage

of this sort of innovation necessitates a

willingness to change on the part of banks.

Only those banks that are genuinely

committed to innovation and change

management will be in a position to deliver

the sort of streamlined digital experience that

can minimise corporate treasury's workload

post-M&A. That in turn necessitates the

elimination of legacy processes and

technology and the efficient redeployment of

existing data onto new technology.

Technology integrationIn addition to account management, another

major area of treasury activity post-M&A

tends to be systems integration. Especially

when a larger corporate acquires a smaller

business or business unit, the likelihood of

both entities already running identical

financial systems is low4. This means that

some form of data exchange between the

systems must be established as quickly as

possible if treasury is to have the degree of

financial visibility it needs for effective risk,

cash and liquidity management. The snag

here is that because treasury is still perceived

in many corporations as a cost centre, it tends

to be near the back of the queue when it

comes to obtaining corporate IT resources,

which in any case may have limited

knowledge of legacy financial systems

integration.

This is a task where having a banking

partner that has both the necessary

experience and expertise can be critical. For

example, it will ideally have qualified ERP

specialists deployed on the ground in

individual countries, not just at a regional

level. This ameliorates the risk of 'lost in

translation' errors when conveying important

technical and financial concepts.

At a more granular level, such a bank may

also have already created a middleware

adaptor that can translate across the required

financial systems for a previous client

implementation. Even if it hasn't, it should

have the necessary skills in-house to create

such an adaptor. The value of this should not

be underestimated; in some regions (MENA

for instance) it is relatively commonplace for

financial systems to be home grown, so the

data format that requires translating may be

proprietary. The manual workarounds that

might be required without a suitable adaptor

would be a severe impediment to effective

post-M&A treasury integration.

ConclusionThe NRU sector has historically seen

appreciable levels of M&A activity, but even

by those standards current activity levels in

most regions are high5. This would be

challenging for corporate treasury at any

time, but at present the situation is further

exacerbated by cost-cutting pressures

bearing down on treasury resources. As a

result, NRU treasuries are increasingly

looking to their banking partners for

assistance in managing pre- and post-M&A

planning and activities.

The difficulty is that few banks can offer

the necessary combination of capabilities.

This includes project management and

technological skills, plus a suitable range of

cash and liquidity management solutions,

but these alone are insufficient. A growing

NRU M&A trend is geographic diversification

often into unfamiliar territory. Therefore, any

suitable banking partner also needs to be

able to deliver a global physical network to

fully support this. �



Notes1 http://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-energy-and-resources-oil-and-gas-m-n-a-report-2016.pdf2 Gulf News (04/04/2016) http://gulfnews.com/business/sectors/banking/kuwait-uae-lead-gcc-acquisition-deals-in-2016-first-quarter-1.17037043 https://ig.ft.com/sites/special-reports/one-belt-one-road/4 Even where entities of similar size are involved, while they may be running the same basic technology - a SAP ERP system for example - they may well not be running the same

version. 5 http://www.bloomberg.com/news/articles/2016-04-24/low-crude-prices-to-spur-more-m-a-deals-in-oil-gas-after-slump

NRU treasuries are increasingly looking to theirbanking partners for assistance in managing pre-and post-M&A planning and activities.

FINANCIAL VS TRADE BUYERS – DEAL VOLUME1

0

5

10

15

20Financial Buyers

Trade BuyersUSDbn

QUALITY OF OUTCOME

Lift and shift

Simpleintegration

Simple integrationwith improvement

NATURAL RESOURCES & UTILITIES M&A LANDSCAPE

OIL & GAS – M&A VALUES2

0

100

200

300

400

500USDbn

GLOBAL M&A ACTIVITY

CONSEQUENCES OF NRU SECTOR LIQUIDITY SQUEEZE

TOP FIVE BIGGESTBANKRUPTCIES3

$2.8B

$3.9B

$2.9B

$4.3B

$5.3B

PACIFICEXPLORATION &PRODUCTION

SAMSON RESOURCES

ULTRAPETROLEUM

SABINEOIL & GAS

ENERGYXXI

DRIVERS FOR POST M&A FOCUS FOR TREASURY

Treasury policy compliance

CASHVISIBILITY

Access to liquidity

Operational risk Fraud/control risk

LIQUIDITY & CASH MANAGEMENT TREASURY INTEGRATION OPTIONS

CHINA INVESTMENTINTO EUROPE – 1H20158

LOWER THAN EXPECTED NRU M&A ACTIVITY

SELLERS’ PRICES BASED ON INTERNAL EXPECTATIONS

LACK OF BUYER/SELLERVALUE CONSENSUS

BUYERS WAITING FOR MARKET BOTTOM

LOW M&A ACTIVITY

40%Rest of world 60%

Europe

TOP 2 REASONS FOR DIVESTMENT7

56% 15%

RISE OF DOMESTIC DEALVOLUMES IN MENA5

MENA M&A TRENDS 2014-164

21Q1 2015

30

Q1 20160

3000

6000

9000

12000

15000

Q1 2016Q4 2015Q3 2015Q2 2015Q1 2015Q4 2014Q3 2014Q2 2014Q1 2014100

150

200

1214,529 10,880 6,287 12,850 5,997 6,498 10,572 10,238 6,998

117132

152 148

183 185

161 163

Deal Value (USDmn)Deal volume

ASIA

EUROPE

MENA

Sources include:1http://www.pwc.com/us/en/industrial-products/publications/assets/pwc-metals-industry-mergers-acquisitions-%20q2-2016.pdf 2http://www.bloomberg.com/news/articles/2016-04-24/low-crude-prices-to-spur-more-m-a-deals-in-oil-gas-after-slump3http://www.forbes.com/sites/christopherhelman/2016/05/09/the-15-biggest-oil-bankruptcies-so-far/#7b847f7b739b4http://gulfnews.com/business/sectors/banking/kuwait-uae-lead-gcc-acquisition-deals-in-2016-first-quarter-1.17037045http://emirates-business.ae/mena-ma-market-to-remain-steady-in-2016/6https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-energy-and-resources-oil-and-gas-m-n-a-report-2016.pdf7http://mergermarketgroup.com/wp-content/uploads/2016/06/Eversheds_Newsletter_Issue_02_Final.pdf 8http://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-csg-2015-china-outbound-ma-spotlight-brochure-en-151111.pdf

M&A REGIONAL VIEWPOINT

OIL & GAS UPSTREAM DEALS6

1H2016

Canada29 DEALS (21%)

Asia, Russia andSouth/Central America18 DEALS (26%)

US

US72 DEALS (45%)

Europe13 DEALS (7%)

For Professional Clients, Institutional Investors and Eligible Counterparties only. Not for Retail Customers. Approved for issue in the UK only by HSBC Bank plc, 8 Canada Square, London E14 5HQAuthorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Published: November 2016

56% were driven by the need to refocus on core business activities

15% were motivated by market changes