Oil and gas M&A set to rebound in Q2 -Morgan Stanley

LONDON, May 11 (Reuters) - Deal making in the oil and gas sector is set to accelerate as higher oil prices and an improved outlook for the sector boost investor appetite, Morgan Stanley (Xetra: 885836 - news) said in a report on Monday.

Royal Dutch Shell (Xetra: R6C1.DE - news) 's $70 billion bid for smaller British rival BG Group (LSE: BG.L - news) last month highlighted the shift in sentiment in the sector after mergers and acquisitions (M&A)slumped in the first quarter of 2015 to a 20-year low, with only 30 deals completed at a value of $4 billion, most of them in North America.

Since the start of the second quarter, 38 deals have completed with a total value of $93 billion, the bank said.

A 40 percent recovery in oil prices since hitting in January their lowest point in the current cycle and increased cost cutting measures by oil producers have been the main drivers of the recent uptick in deal making.

"There is now meaningful momentum behind current cost and capex (capital expenditure) savings programs in the industry," Morgan Stanley said.

"With oil price risks skewed to the upside we see a 'sweet spot' of rising prices and falling costs leading to a free cashflow recovery for potential exploration and production (E&P) acquirers and accelerating M&A activity."

(Reporting by Ron Bousso, editing by Louise Heavens)