2012 has been dominated by large asset deals as companies attempt to strategically realign their businesses with current commodity prices. Buyers continue to target oily assets for acquisition and development, while sellers are cashing in during a period of historically high transaction metrics for oil assets.

Average proved reserve and net production metrics for oily assets continue to rise while the same metrics continue to decline for gassy assets. MLPs (master limited partnerships) and private-equity firms have been the most active buyers of gassy assets so far in 2012.

Deal types. Asset transactions have contributed about 70% of the total transaction value closed in 2012, a significant increase from 2011 (36%) and 2010 (55%). Increased size of asset deals, rather than quantity, has been the driving factor. In terms of quantity, asset deals continue to make up 75% to 80% of total deal flow in the A&D market; however, the size of the average asset deal in 2012 is approximately $400 million compared to $210 million in 2011 and $300 million in 2010.

Multiple large upstream asset divestitures from BP Plc and Chesapeake Energy Corp., which total $7.8 billion and $5.4 billion respectively, have driven the increase in total deal value and average deal value for asset transactions in 2012.

Asset types. Oily transactions are becoming more frequent as new shale plays continue to develop. Growth-oriented E&Ps are paying premium metrics for undeveloped acreage positions in these areas. Undeveloped liquids-rich assets represent more than 30% of all deals closed in 2012, up from 25% in 2011 and 14% in 2010.

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The Permian, Bakken and Eagle Ford continue to be the most active liquids-rich plays. The Permian has seen a significant rise in undeveloped asset transaction activity as buyers are pursuing large acreage positions in the basin for unconventional targets. The Bakken and Eagle Ford have been steadily active since 2010, with some 50% of those transactions involving primarily undeveloped assets each year.

The Barnett has been the most consistent gas play in deal activity from 2010-2012, primarily because of its maturity. MLPs have targeted these assets regularly in 2012. Undeveloped gas assets, which were the primary drivers for the Marcellus and Haynesville transaction markets in past years, have fallen off dramatically due to their challenging economics.

Transaction metrics. Proved reserve and net production metrics continue to rise for oil deals and fall for gas deals. The metrics depend heavily on the location, stage of development and available upside, but on average metrics have moved in opposite directions for oil and gas deals

Buyer representation. The majority of domestic E&Ps continue to focus acquisitions on liquids-rich assets due to current commodity prices and drilling economics. Transactions involving foreign buyers have been more heavily weighted towards corporate and JV transactions.

MLPs and private-equity firms are taking a different approach. Roughly half of the transactions closed by MLPs this year have targeted developed gas assets. Private-equity firms have invested more than $8 billion in gas-weighted acquisitions this year. MLPs are acquiring these assets for current cash flow and the upside in natural gas prices. Private-equity firms are hoping to see a significant value creation with a return of higher natural gas prices.

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2012 Upstream Buyer Representation