PLS: Global Upstream M&A Activity Totaled $170B In 2011

Global M&A activity for upstream oil and gas deals in 2011 totaled $170 billion in 726 deals, according to Houston-based PLS Inc. in conjunction with international partner Derrick Petroleum Services.

The data was collected by PLS’ Global M&A Transactions Database and includes all upstream oil and gas deals with values disclosed.

Total deal value in 2011 dropped 19% from 2010 record levels, yet the number of deals increased 15% to a record of 726, according to PLS president Ronyld W. Wise.

“The relative strength of WTI and Brent oil prices, which averaged $95 and $111 per barrel, respectively, provided good fundamentals for both buyers and sellers to execute the deals,” says Wise. “Activity in 2012 is expected to remain at a healthy pace as the industry continues to deploy large amounts of capital toward production development. Currently, we tally over $100 billion of assets on the market."

Buying is dominated by international interests seeking to shore up longer term supply by investing in both proven conventional reserves worldwide and unconventional plays in the North America.

Yashodeep Deodhar, managing partner, Derrick Petroleum, says, “The Chinese dominance in buying global oil and gas assets is highlighted by the fact that Sinopec has been the number one cash acquirer over the last three years, spending more than $35 billion between 2009 and 2011 to build a truly global footprint. Sinopec's cash was welcome in large capital intensive projects such as Repsol and Galp's pre-salt developments offshore Brazil and ConocoPhillips and Origin Energy's APLNG project in Australia . With continued healthy cash generation ( $7.3 billion in H1 2011), Sinopec is expected to continue major acquisitions of global oil and gas assets, likely within unconventional shale plays worldwide, in countries such as the United States , Argentina and Poland. Today's announcement of Sinopec's $2.5 billion joint venture with Devon in five U.S. new venture plays is evidence of Sinopec's continuing acquisition strategy."

While the number of deals slowed in late 2011 due to financial uncertainty, deal values in fourth quarter 2011 set the high mark for the year. Highlights of the quarter include KKR and partners' $7.2-billion acquisition of Tulsa-based privately held Samson Investments, Kinder Morgan’s acquisition of El Paso ( $7.2 billion attributed to the oil and gas assets included in the deal) and Statoil's $4.7 billion purchase of Brigham Exploration.

Globally, the U.S. continues to lead upstream oil and gas deal activity with a 46% share of all deals and 51% of deal value followed by Canada with 27% and 9% share, respectively.

Anders Wittemann, associated partner, Derrick Petroleum Services for EMEA, says, “Outside of North America, Europe, including the North Sea, in 2011 was the top region and reached a record high level at $14.4 billion or 8% of global share. This activity level, achieved by an extraordinary diversity of companies, has reaffirmed the strategic value and attractiveness of portfolios in the Europe /North Sea region.”

Corporate M&A activity, as opposed to asset purchases and joint ventures, represented 52% of global deal value in 2011. On a quarterly basis, corporate M&A share increased from 35% and 39% in first and second quarters of 2011 to 65% and 62% in third and fourth quarters, respectively. The high share of corporate M&A deals in the latter quarters points to the general uncertainty in the market which makes negotiating asset deals difficult. The same global trend also occurred in 2009 when the share of corporate M&A deals shot up to 73% from an average historical range of 35% to 45%.

As of Jan. 1, total upstream oil and gas assets on the market for sale stood at more than $100 billion. Approximately 30% of these are corporate M&A deals.

PLS and Derrick both expect the market for oil and gas assets to continue at a healthy pace driven in part by onshore North America’s transformation from exploration to exploitation to today's "manufacturing process," a technology that requires significant capital for full development of the resource.

PLS and Derrick expect the trend of independents such as Brigham, Petrohawk and XTO being sold to larger companies to continue especially in light of current North American gas prices and world oil prices.

Globally, growing Asian economies will continue to drive deal activity as buyers seek new oil and gas reserves and provide capital for world class exploration plays in areas such as West Africa, East Africa and Brazil deepwater.