Unconventional natural gas resources in North America and the Asia-Pacific region represented almost 40% of all of the global mergers and acquisitions last year, according to an annual review of upstream transactions.
The review, issued on Friday by IHS Herold Inc. and Harrison Lovegrove & Co. Ltd., analyzed data from more than 280 "significant" upstream transactions that were announced in 2008. Researchers found that upstream oil and natural gas transactions were down almost one-third from 2005-2007 to $104 billion from the previous two-year average of $160 billion.
One bright spot: "buyers competed vigorously for coal seam gas assets in Australia and shale gas interests in the U.S. and Canada," the researchers said. "As a result, the gas weighting of transacted reserves reached 70%, the highest in 10 years."
However, deal activity slowed "dramatically" in the second half of 2008, particularly in North America.
"Deal activity was on a record pace through the first half of 2008 as 203 transactions were announced by July 31," the review said. "Then the market tailed off precipitously to just 79 in the final five months of the year due to plunging commodity prices and the extreme weakness in equity and credit markets. Activity in November and December was a record low 25 deals, half the historical average."
This year researchers predict the beginning of a period of "significant consolidation" among energy players, but the transactions may be smaller than in previous years.
"Industry consolidation in a low oil price environment has typically been led by the largest international integrated oil companies, which have the financial strength to finance transactions," said the review. "The expectation is that corporate takeover activity will increase through 2009 and into 2010. Looking to 2009 and beyond, the number of assets coming to the market is expected to increase. However, the buyer universe may be smaller than in the past, at least in the near-term, as many of the companies that completed transactions over the last four years now lack the resources to remain active in the M&A market."
According to the study, the weighted average proved implied reserve value increased to $11.51/boe in 2008, up from $10.01 in 2007. The weighted average proved plus probable (2P) implied reserve value was a five-year high $5.25/boe in 2008 versus $4.67 in 2007. However, implied reserve values fell with commodity prices in the last three months of 2008 to $2.83/boe for 2P reserves.
Corporate transaction values continued to fall as they have for the past few years. Values plunged to $32.2 billion in 2008, down by almost half the $64.2 billion in values for 2007 and 72% below the $120.2 billion announced in 2005. The corporate deal count also hit a five-year low in 2008, "with no U.S. corporate transactions in the fourth quarter."
After rising for six consecutive years, worldwide asset deal values fell last year to $70.1 billion from the record $88.2 billion in 2007. However, the review noted that last year still remained the second highest for values ever recorded. Asset transactions accounted for a record 67% of total worldwide transaction value and 80% of U.S. transaction value.
National oil companies (NOC) and sovereign wealth funds based in Latin America, Asia and the Middle East accounted for a record 15% of global open market transaction values in 2008, including six of the top 10 largest deals. NOCs also were found to be the most active acquirers in the first three months of 2008.
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