WOOD Mackenzie has predicted a surge in mergers and acquisition activity in oil and gas markets as “mounting distress” forces many firms to sell assets in areas such as the North Sea although it reckons there may be some recovery in crude prices this year.

The Edinburgh oil and gas consultancy said 2016 will be a year of upheaval as growing numbers of firms decide to sell up after spending 18 months battling with the effects of a tumbling oil price.

With crude down around 70 per cent since June 2014 many firms are losing money on production in the North Sea, where companies have slashed spending and jobs.

Fiona Legate from Wood Mack’s UK exploration and production team said the price fall has made life particularly hard for some smaller firms in the UK, which are seeing revenues dry up.

“This year we will start to see the distress sales emerging,” said Ms Leggate, who noted Wood Mack was surprised not to have seen any last year.

She added: “They will hold out as long as they can but we think they will get to the point where they have no choice.”

The challenges facing some smaller companies were underlined yesterday when two UK subsidiaries of Canada’s Iona Energy fell into administration.

In November Iona said it was likely the two firms would commence insolvency proceedings. It said then a proposed debt restructuring could not be completed as planned after a global energy business pulled out of talks to buy into the Orlando project East of Shetland.

Ms Leggate said majors would probably look to sell UK North Sea assets as they focused on core operations amid the downturn.

In a report on the international oil and gas mergers and acquisitions market, Wood Mack said mounting distress will force more companies to market around the world. The sell off could include some of the new projects that oil and gas firms are developing.

Greig Aitken, principal M&A analyst at Wood Mack, said: “Some capital intensive development assets will have to be sold, almost regardless of price.”

The analysis will stoke concern about the future of the North Sea, where firms cut more than 5,500 jobs last year in response to the crude price fall.

In September Wood Mack warned around 140 UK North Sea fields will be taken out of production because they are not profitable enough over the next five years, even if oil prices return to $85/bbl.

Brent crude was trading at $35 per barrel yesterday compared with $115/bbl in June 2014. Supplies have been running well ahead of fairly muted demand following a boom in production in US shale areas in recent years.

Wood Mack said yesterday prices could recover to over $65/bbl in the second half of the year. Cuts in investment in new fields could bring supply and demand closer into line while political factors in the Middle East could support prices.

But this may not be enough to help firms that acquired assets during the boom in oil prices that ended in 2014.

“While the top tier of International Oil Companies can largely take action to ride out a further year of low prices, the next tier down may have fewer options,” said Wood Mack.

The company noted private equity giants had raised billions of dollars to take advantage of the opportunities that would arise in the low oil price environment.

It said private equity firms could face competition if oil prices increase as expected, predicting some companies would move quickly back into growth mode.