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Deloitte: North American Shale Magnet for Foreign Companies

Unconventional oil and gas activities and production continued to make their significance felt in mergers and acquisitions (M&A) in the oil and gas sector last year, with much of the new domestic investment coming from foreign companies, according to Deloitte.

National oil companies and other international buyers were attracted to assets in North America because of political stability and maturity of the investment environment; the ability to invest in resource plays that are well known with predictable results; access to technology and workforce expertise; and the potential that continued growth could lead to an export market for North American resources, Deloitte said.

The value of global energy deals last year was $321.5 billion, up from $300.6 billion in 2011 even though the number of deals declined from 698 to 576, Deloitte said.

"While the substantial percentage gain in transaction value reflects the inclusion of a few very large international transactions during the fourth quarter, overall deal activity remained healthy and continued to be driven by the exploration for and development of unconventional oil and gas resources," Deloitte said in its year-end report on oil and gas industry M&A.

Looking ahead, M&A action will continue to focus on opportunities in the North American markets, where technological innovation and private ownership of reserves has created a promising future for the industry and related deal activity, as well as for the overall economy, Deloitte said.

Deloitte said it doesn't expect domestic natural gas prices to rebound significantly this year, but deal activity may pick up in the exploration and production and service areas. In the upstream arena, last year's deal value rose more than 50% to $253.4 billion from $167.9 billion in 2011, Deloitte said, even though the number of deals declined 11% from 518 to 461. The upsurge in activity took place almost entirely in the fourth quarter.

In the midstream sector, transaction activity remained brisk in 2012, with the total value of mergers and acquisitions reaching $35.6 billion, but that was down significantly when compared to $84.5 billion in 2011. The need to move domestically produced oil and gas to market from new regions and in new directions will continue to drive capital spending and funding needs in the midstream sector for years to come, the firm said.

Transaction activity in the oilfield services sector was quiet, in part as a result of the steadily declining U.S. rig count over the course of 2012, Deloitte said. This year may be a year when M&A activity rebounds in the onshore oilfield services sector as sellers become more realistic about pricing and consolidation, the firm said.

In the downstream arena, deal activity remained steady as the value rose to $14.6 billion for the year, compared to $11 billion in 2011. U.S. refiners in general have seen their underlying business fundamentals greatly improve over the last two years as a result of fundamental prospects and valuations being highly dependent upon geographic location and access to cheap crude and pipeline capacity, Deloitte said.

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