Oil and Gas Industry Is Dealing in Virtual Data RoomsAuthor: Kathryn Gaw
The oil and gas industry is home to some of the world’s biggest companies, so it should come as no surprise that the industry as also seen some of the world’s largest mergers and acquisitions. The sheer volume of information involved in fostering partnerships or closing out deals in the energy sector makes the due diligence process of any bid a lengthy, costly and complicated ordeal.
It is for this reason that virtual data rooms have proven to be so popular among companies in the industry as they offer superior data handling ability through ensuring the security and integrity of all sensitive data throughout the deal or tender. The reduced time taken to complete diligence as well as reduced costs have allowed many oil and gas companies to redefine their target market and ‘cast a broader net’ in terms of where they seek to operate and who they plan to partner with.
Recent geopolitical instability and changes in how oil and gas reserves are regulated have resulted in a forced change in the way that companies do business with themselves and with governments. Virtual data rooms have altered the way in which companies interact with government tenders has the flow and quality of information pertaining to the tendered oil reserves or gas fields has vastly improved. Online data rooms allow the tender process to be split up into the relevant blocks being tendered and then provide extensive information relating to the reserves so that each company can evaluate and interpret the data to better help them formulate a competitive bid.
Many countries employing virtual data rooms to aid the bidding process have found that the number of interested companies and submitted bids have increased after the shift to open data rooms. The release of information, referred to as stacks, is staggered according to the stage of the deal so that critically valuable information is not shared with adverse parties. Mexico, who recently opened up their oil sector, saw great success through the use of data rooms to facilitate the transition into competitive bidding from multinational firms. It is likely that other countries will have to follow suite in order for the sector to evolve and survive amidst a rising tide of green energy.
The energy sector has entered a phase of increasing competition from new markets, such as wind, solar and green energy in general. This, combined with stricter governmental regulation, volatile commodity prices and instability in commodity countries has forced energy companies to collaborate and cooperate on an unprecedented level. Strategic partnerships, mergers and joint ventures are become buzz words in the industry as once-dominant companies come together to fight the inevitable.
Increased collaboration means an industry-wide increase in the volume of data that needs to be shared between companies in their newly formed partnerships or merged conglomerates. For the most part, virtual data rooms have filled this role of providing a stable yet secure platform through which negotiation and cooperation can take place. Increasingly, virtual data rooms are being used in day-to-day operations of business by acting as a virtual workplace in which employees contribute towards projects.
Fundraising is an important area that has been affected by the rise of virtual data rooms in the oil and gas sector. Seeking investors in an increasingly global and multi-lingual arena involves sustained interactions with multiple parties and the need for the sharing of real time information between parties. Virtual data rooms allow for strict monitoring of all interactions so that discussions can be controlled and be subjected to the strict regulatory oversight that is indicative of the industry.
Driving the costs of business development down is another major achievement of secure data rooms as it reduces the barriers to cooperation and strategic partnership within the industry. The unique features of virtual data rooms also allow for the temporary sharing of sensitive company information without compromising the integrity of the company as a whole. This opens up the window for short-term partnerships aimed at bridging the gaps caused by the commodity cycle and by fluctuating demand for oil and gas derivatives.
The uptake of virtual data rooms in the oil and gas sectors is vital to their sustainability, which is under constant threat from newer energy sources and sharp changes in prices and global demand. A more efficient industry has the best chances of ensuring long-term growth, created through partnerships and effective competition.