In its latest study global management consulting firm AT Kearney says there are intense pressures on prices challenges cash flows so oil companies of all sizes need to have a clear response to the situation – both near term but also longer term.

Companies are expected to respond with mergers and acquisitions to reshape the competitive landscape to their advantage.

KPMG's 2015 M&A Outlook Survey Report indicated that M&A activity was expected to be extremely high this year, primarily in the healthcare related fields, but energy also ranked highly.

Energy respondents to the survey said that deals in their sector were being driven by the consolidation of core businesses and a response to competition, the need for geographic growth, and the need for new technologies and product and service growth

The most common M&A challenges are anticipated to be uncertainty in the regulatory environment, valuation disparities between buyers and sellers, the ability to forecast future performance, and volatile energy prices.

According to Shanghai-based AT Kearney Greater China managing partner Thomas Luedi, Australia can expect an exciting time in the M&A space, given the global nature of the industry.

"[International oil companies] are expected to continue looking for divestment opportunities for their Australian downstream assets,” Luedi said

“Meanwhile, Australian upstream operators will be under ever-increasing pressure to reduce costs. Therefore, some independents with weaker balance sheets – which can't 'squeeze' any further – may be sold under some duress, presenting exciting opportunities for counter-cyclical bargain hunters circling the Australian market."

Tap Oil, which recently started production at its Manora field in Thailand is one company that has started a root and branch strategic review of its assets.

The company, which was already keen to sell undeveloped gas discoveries such as Greater Zola and Tallaganda off the coast of Western Australia, is being squeezed by its Manora payments and cashflow concerns and now says that anything is on the table as far as asset sales are concerned, including its single producing asset.

Locally, further consolidation is possible in the Cooper Basin, while a weakened Santos is considered a takeover target. US major Apache Energy’s selldown in Australia could also free up some interesting assets.

Local AT Kearney consultant Ankit Mishra said that it is likely that high cost future bets such as Australian shale plays being pursued by Buru Energy in the Canning Basin, Beach Energy and others in the Cooper Basin or AWE in the Perth Basin will either be shelved or slowed dramatically due to the high costs associated with unconventional resources, especially ones that are not close to existing infrastructure.

Globally, M&A in the oil and gas space showed a strong recovery in 2014 after a slow 2013, and with recent oil price decreases and OPEC's decision not to cut output, 2015 is set to witness even further M&A activity across the value chain.

These strategic deals will be the key to growing value and aiding companies to navigate market turbulence, according to London-based AT Kearney partner Richard Forrest.

"Strategic approaches to M&A are critical to address the intense cost and cash-flow pressures experienced by oil and gas players. Our analysis and discussions with industry executives revealed the likely onset of a new wave of mergers and acquisitions across the value chain in the next six to 12 months," Forrest said.

"The window of opportunity may be shorter than expected and will be driven by oil price expectations. Those companies with strong cash flow and healthy balance sheets will be able to leverage opportunities, while others will need to define strategies just to survive."

AT Kearny expects IOCs, national oil companies and small-to-mid-sized independents will all participate in the M&A flurry, and lower prices will also see some service sector consolidation, with the bulk of deals in the upstream segment.

For IOCs, optimising portfolios in core chosen areas will likely to be the focus, with a pullback in speculative exploration and ‘science experiments’

Divestment of downstream and non-core assets could accelerate to enable funding of targeted upstream activity and meeting cash flow needs throughout 2015.

Mega deals for scale synergy are not out of the question but will be limited.

PetroChina is one company keen to sell down from its 50% stake in the stalled Arrow LNG project in Queensland.

As ever, NOCs will be given by near-term domestic needs and government agendas as much as by economic and business strategies

AT Kearny found that independent oil companies' success in M&A would be determined by balance-sheet strength and varying levels of exposure to assets with higher breakeven oil prices.

The more adventurous financial investors may take the opportunity to enter the market; however, the current margin squeeze, low oil prices, and sluggish demand could suppress some investors' appetites.

Financial investors are likely to acquire in the oil-field services sector, downstream divestments by IOCs, and for those with confidence, some upstream assets beyond the traditional mature production.

Oil service companies will continue to be hit hard as operator margins are squeezed and this will also impact service providers. There is significant potential for consolidation and investors with capital to invest will continue to be active, plus new entrants such as large engineering companies could make strategic moves to enter the market.

Forrest said the market will be both dynamic and competitive for 2015.