More stable commodity prices, private equity (PE) interest and a more focused portfolio approach by explorers led to a healthy merger and acquisition (M&A) market for oil and natural gas in the first quarter, with the United States taking more than a one-third share.

Houston-based research firm PLS Inc. and Derrick Petroleum Services reported the latest findings from its quarterly oil and gas M&A database. In 1Q2014, global upstream transaction activity totaled $40.7 billion, spread across 192 deals, including 133 with values disclosed. (The database only includes transactions with values disclosed).

Aggregate M&A deal value in the quarter rose 1% sequentially, achieved by closing 226 transactions, 65% more than in the year-ago period when a total of $23.5 billion was announced for 260 deals. Similar findings were reported by Evaluate Energy for 1Q2014 (see Daily GPI, April 3).

U.S. deal values remained flat sequentially at $14.8 billion but were 6% higher than in 1Q2013. The total deal count, however, slipped 16% sequentially and 30% from the year-ago period. Domestic deal values in the latest period were off 10% from the quarterly average since 2007, while the total deal count was down 20%.

“For the last three quarters, the stability of the U.S. M&A markets is remarkable at roughly $15 billion per quarter,” PLS Managing Director Brian Lidsky said. “This level of activity is expected to continue as indicated by the deals in play [DIP] inventory, which now stands at $42 billion, in conjunction with flat to upward rising commodity prices and a healthy reshuffling of assets.

“All eyes are on execution, efficiencies and cost control as the M&A markets serve to place the right assets with the right capital structure — be it public or private.”

On U.S. upstream valuations, current flowing production benchmark multiples for proved, developed producing conventional-weighted assets are down slightly for both oil and gas assets. The database’s proprietary screen indicates that oil-weighted asset multiples now are $100,000/boe per day, or $25.00/proved boe, with an average reserves/production (R/P) of 11 years. In 4Q2013 it was $110,000/boe per day, or $18.75/proved boe and average R/P of 16 years.

Natural gas multiples currently are $5,300/Mcfe per day and $1.60/proved Mcfe with an average R/P of 10 years, compared to 4Q2013’s $5,900/Mcfe per day and $1.50/proved Mcfe with an average R/P of 11 years.

Regionally, North America accounted for $23.2 billion in oil and gas M&A, leading the global market with a 56% share. Europe (18%) and Australia (8%) followed as the most active regions, with rebounds in Canada and Europe.

Canada accounted for $8.4 billion of oil and gas activity, more than double the amount in 4Q2013 and surpassing the $7.6 billion in deals announced quarterly since 2007. The largest transaction was by Canadian Natural Resources Ltd., which spent $2.8 billion to buy Devon Energy Corp.’s Western Canada conventional gas portfolio (see Daily GPI, Feb. 19).

“North America’s market share jumped to 57% from 46% quarter-to-quarter,” said Derrick Director Mangesh Hirve. “While Asian companies continue to be active buyers, striking $4.8 billion of deals in the first quarter, or 12% of the market, the pace is down from 4Q2013’s $14.5 billion, or 36% of the market…We certainly view this slower pace as a pause as Asia’s share of the global deals markets rose to 23% last year from 14% in 2011.”

In the first three months of 2014, global upstream activity remained consistent and healthy, on trend with the second half of 2013, said Lidsky. “Another positive signal during the first quarter was that the average deal size eclipsed $300 million, up 25% over 4Q2013 and up 80% year-over-year.”

Contributing factors to more stable activity include upward trending commodity prices, strong capital flows from the PE sector and continued activity among U.S. resource players in the acquisition and divestiture markets “to focus corporate activity on stable, large and executable long-term drilling inventories. Critical to the success for these mega-projects is the emphasis on execution and cost control.”

An inventory of DIP worldwide remained stable at $132 billion, suggesting that the pace of M&A will continue at recent levels.

“Private equity coffers remain large and oil and gas presents a compelling investment in today’s capital market environment,” PLS said. An example in late 1Q2014 was a transaction by PE giant TPG Capital, which backed the $1.8 billion purchase by Maverick American Natural Gas of Jonah field gas assets from Encana Corp. (see Shale Daily, March 31).

The database also showed that at the end of 1Q2014, the growth of the inventory of DIP was stable and totaled $132 billion, marginally higher than $127 billion on Jan. 1, and slightly lower than the recent peak of $135 billion on Sept. 1. However, year-over-year, the inventory is up by 55% from $85 billion on Jan. 1, 2013.

DIP in North America now includes one by Linn Energy LLC to swap Midland Basin assets; Encana’s deal to sell Bighorn assets in Alberta; Devon’s sale of noncore Rockies assets; and Royal Dutch Shell plc’s decision to sell up to half of its U.S. operational portfolio.

“The U.S. has the largest inventory of deals in play with an estimated $42 billion (up from last quarter’s $38 billion), followed by Canada with $23 billion (same as the prior quarter); Russia with $14 billion (down from last quarter’s $16 billion); and Australia with $10 billion (down from $11 billion),” the report said.