Domestic upstream merger and acquisition (M&A) deals in 2011 set another record, fueled by unconventional oil and natural gas, a survey by PLS Inc. has found.

The review of U.S. deals in 2011 by Houston-based PLS and partner Derrick Petroleum Services found that $86 billion was spent for 369 deals, versus 2010's record-setting pace of $75 billion for 313 deals. PLS and Derrick are completing a review of oil and gas M&A activity for 2011, which is scheduled to be issued in the next few weeks.

"Industry appetite for oil-rich resource plays, particularly the North Dakota Bakken Shale, Texas Eagle Ford Shale and Ohio Utica Shale, drove deal activity in the unconventional sector to a record $62 billion," said PLS President Ronyld W. Wise. "We expect continued strong activity in oil and liquids-rich resource plays in 2012."

Earlier this month Devon Energy Corp. struck a $2.5 billion joint venture with China's Sinopec Group across five new venture resource plays (see Shale Daily, Jan. 4a). Chesapeake Energy Corp. and Total SA also clinched a tie-up in the Utica Shale at the end of last year (see Shale Daily, Jan. 4b).

In addition, Quicksilver Resources Inc. acknowledged that it is looking for a JV partner to help develop its Horn River Basin leasehold (see Shale Daily, Jan. 6). And Kinder Morgan Inc. this year is expected to complete a friendly merger with El Paso Corp. in what has been called a shale-fueled transaction (see Shale Daily, Oct. 25, 2011).

"For the unconventional sector, six of the deals in 2011 make the top 10 list for unconventional deals by value since 2006," said PLS. "Australian-based BHP Billiton made two top 10 acquisitions in 2011. In July BHP acquired Petrohawk Energy for $15.1 billion with producing assets primarily in the Eagle Ford and Haynesville shales (see Shale Daily, Nov. 17, 2011; July 18, 2011). Last February BHP acquired all of Chesapeake Energy Corp.'s interests in the Fayetteville Shale play in central Arkansas for $4.8 billion" (see Shale Daily, April 4, 2011; Feb. 8, 2011).

The $37.8 billion KMI-El Paso merger was the largest U.S. deal of 2011, according to PLS. In its analysis, PLS allocated $7.2 billion for the upstream exploration and production portfolio of El Paso, which ranks the upstream oil and gas portion of the deal as the third largest unconventional, upstream transaction since 2006. El Paso is said to be imminently close to selling the E&P unit, either in one package or in pieces.

By plays, the Bakken Shale led deal activity with 49 separate transactions (one-third of all unconventional activity), totaling $7.2 billion, up from 17 deals (13%) for $4.6 billion in 2010. The Eagle Ford Shale was the second leading area with 22 deals for $6.7 billion, versus 30 deals for $9.5 billion in 2010. The Utica Shale accounted for 12 deals and $5.3 billion in 2011.

Within the conventional oil and gas sector, only one deal made the top 10 list: private equity firm Kohlberg Kravis & Roberts (KKR) led an investor group deal in November to acquire privately held Samson Investments for $7.2 billion (see Shale Daily, Nov. 28, 2011).

"For conventional deal activity by region in the United States, the KKR/Samson deal is classified as multiple-region," said PLS. "Beyond multiple-region, the Permian Basin generated the largest deal values in 2011 totaling $5.4 billion in 39 transactions while the Midcontinent region tallied $3.7 billion in 52 transactions.

"Interestingly, California saw increased activity in 2011 with nine deals for $1.5 billion, compared to less than $300 million annually from 2006 through 2010. Also, the shallow portion of the Gulf of Mexico witnessed 22 transactions (for $1.2 billion), up from eight deals in both 2010 and 2009."

PLS and Derrick expect the market for oil and gas assets to continue at a healthy pace "driven in part by onshore North America's remarkable shale transformation from exploration, to appraisal to today's development or 'manufacturing process.' The full development of these shale resources requires significant funding from new sources and overseas capital is filling this role."

The trend of independents selling to larger companies also is seen continuing "especially in light of current North American gas prices and world oil prices."