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U.S. Upstream Deals Smaller, More Conventional

Upstream operators were less enthusiastic about making big deals in 2013, and not nearly as glammed by unconventional natural gas and oil prospects as in years' past, IHS Inc. researchers said.

"Following record-setting purchases of more than $200 billion on unconventional resources during the prior three years, varied drilling results in emerging North American basins made buyers more cautious in 2013," said IHS’s Christopher Sheehan, energy mergers and acquisitions (M&A) research director. "In particular, overseas firms reduced their cross-border purchases, and oil and gas companies concentrated on exploiting the best performing areas of their vast development inventories." Researchers compiled the annual report using the IHS Herold M&A database.

Because of persistent low natural gas prices, the percentage of gassy U.S. reserves acquired last fell to a 10-year low. Domestic deal activity predominantly was in the Midcontinent, onshore Gulf Coast and Rocky Mountain regions. Unconventional resources represented only half of the 10 largest domestic transactions.

Unlike a few years ago when exploration and production companies stormed across North America to capture unconventional acreage, tight gas and shale resources were the primary target for only one of the top 20 largest global transactions, according to IHS.

That one global upstream deal was also the biggest of the year: Devon Energy Corp.'s $6 billion purchase of Eagle Ford Shale assets from privately held GeoSouthern Energy (see Daily GPI, Nov. 20, 2013). Devon, one of the largest gas producers in the United States, bought GeoSouthern to gain more oil share.

However, not many others were as keen on the United States. Total domestic transaction value declined to a five-year low in 2013, with corporate deal value falling to a 10-year low.North American acquisitions overall represented just three of the 20 largest transactions, with its market share of worldwide deal value falling to less than 45% from 50% in 2012 as buyers sought access to international discoveries.

 Following years of record dealmaking by exploration and production (E&P) operators across the globe, transaction values in 2013 fell by almost half year/year to $136 billion, the lowest level since the 2008 recession, according to researchers with IHS Inc. The deal count dropped by 20% from the 10-year high in 2012 following a sluggish start.

"Following record high deal value of more than $250 billion in 2012, and more than $600 billion of acquisitions during 2010 to 2012, many companies pivoted their focus to the development of recently acquired reserves, resources and acreage," said Sheehan. "However, the total global upstream capital investment increased by approximately 10% in 2013 due to the significant growth in exploration and development spending."

The number of worldwide asset transactions fell by almost 15% from 2012, while the corporate deal count dropped by half. Several large corporate upstream takeovers exceeded $10 billion in 2012, but there were none valued above $15 billion last year.

While unconventionals weren't as sparkling as in years past, offshore and conventional onshore resources gained global M&A market share last year, with offshore transactions accounting for four of the 10 largest deals. Spending on unconventional deals fell by more than half in 2013, to about $40 billion.

Chinese, and Asian and Caspian regional national oil companies were the buyers in half of the 10 largest deals last year. Transactions in West and East Africa more than doubled the market share of the Africa and Middle East region to 15%, and spending in Latin America also increased notably to 7%.

The Russia and Caspian region represented more than one-quarter of global total transaction value for the second consecutive year, as state-owned OAO Rosneft continued to expand its domestic holdings. The combined value of transactions in Canada, Europe and Asia totaled just above 15% of the global total, down from nearly 30% in 2012.

The oil and liquids percentage of acquired proved (1P) reserves in North America and proved plus probable (2P) reserves outside North America, excluding the Russia and Caspian region, both remained near a 10-year high. Total transacted 1P and 2P reserve volumes fell steeply because there were no transactions in 2013 that approached Rosneft's $60 billion purchase of Russian producer TNK-BP in 2012.

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