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M&A activity in general, and in the energy sector in particular, was relatively mute in the last year. Activity picked up towards the end of the year with BP's sale of its 51 per cent stake in its Indian solar power business to Tata, Repsol's acquisition of stakes in oil and gas fields in Mississippi, EDF's announcement to acquire Edison, and earlier this year Eon's planned acquisition of a stake in Brazil's MPX Energia. Despite that, 2011 overall was still a dull year for M&A transactions.
It is anticipated however for activity to dramatically pickup in 2012. The recent move by Cove Energy to put itself up for sale for an estimated $1bn has sparked renewed expectations for a much active year. The argument is that due to the limited ability of the smaller companies to raise adequate capital (especially given current circumstances in the capital markets) to finance their expansion and the development of new fields, they are increasingly turning to the bigger players with much deeper pockets and/or better ability to raise capital to acquire them and invest in their growth opportunities.
Considering the increased complexity of energy projects as companies are entering a new technological era marking the end of "easy oil", there is a growing concern about the real preparedness of companies to deal with the new risks they are facing. The potential severity of those risks due to the important damages caused to the environment and their possible impact on populations explain this apprehension.
Though most energy companies have now put in place a risk management organisation and rigorous risk control systems, mostly to comply with new laws and regulations, the lessons drawn from the recent past indicate that it did not result in much improved safety performance . In fact compliance is not enough; it does not guarantee that risks are effectively under control . Most accidents are explained by transgression of safety rules and procedures, excessive risk taking or simply risk blindness. It demonstrates that risk management rules and procedures may exist but are not always taken seriously enough within organisations. Why is it so? Partly because efforts made in this domain are not reflected in the value of the company but rather have a negative impact on usual financial performance indicators.