With improved credit markets and increased CEO confidence, the U.S. market for oil and gas mergers and acquisitions (M&A) in 2Q2010 reached its highest level in more than six quarters, according to a survey by PricewaterhouseCoopers LLP (PwC).

The domestic sector recorded a total of 142 announced deals in the latest quarter, which was the highest volume for deals since 3Q2008, when the deal total was 190, PwC reported. Total value for 2Q2010 amounted to $36.9 billion, compared with $13.7 billion in the year-ago period, representing a 169% increase year/year.

In the first half of this year there were 262 announced deals in the U.S. oil and gas sector, which was 27% higher than in the first half of 2009. Compared with the first three months of this year, activity rose 18.3%, with 120 announced transactions valued at $32.5 billion. Upstream asset-focused deals dominated deal activity, comprising 67% of total deal value in the quarter, along with the largest total deal volume at 80%.

"Deal activity in the oil and gas sector rebounded significantly in the second quarter, and we expect the momentum to continue throughout the second half of the year," said PwC's Michael Collier, U.S. leader of the energy M&A practice. "As commodity prices and equity markets continue to stabilize, senior managers are showing greater inclination to do transactions today than we've seen over the past two years. At the same time, buyers and sellers are more aligned when it comes to valuations, which is helping to drive the market and to ultimately get deals done."

For the three-month period ending June 30, oil and gas asset sales represented 85% of deal activity compared with 15% from U.S. corporates, in part because of energy companies exiting conventional commitments to focus on and finance positions in unconventional resources.

"Asset sales heavily contributed to the resurgence in activity in the second quarter, which have largely been driven by oil and gas companies continuing to adjust their portfolios to maximize the return on their core businesses," said Collier. "While the [Gulf of Mexico] oil spill has created some uncertainties for deepwater assets, the U.S. government policy response will be the real driver as CEOs of both resource and equipment and services companies rethink the risks and rewards of doing business in the deepwater."

Close to $13.4 billion of deals related to assets sales involving entities not based in the United States that took positions in shale gas and unconventional gas and oil assets, according to PwC. Foreign buyers made up more than 25% of the transactions in the quarter, up from 21.6% during the same period last year. "Inbound transactions by China-based companies accounted for $900 million in M&A deals, demonstrating China's ongoing search to feed its appetite for oil and gas as the world's leading consumers of energy," the survey noted.

"With a significant amount of capital on the sidelines, private equity firms are beginning to find opportunities to do deals in oil and gas, especially focused on midstream and upstream assets," Collier noted. "As deal activity continues to heat up, U.S. corporates are acknowledging the savvy dealmaking strategy of private equity firms and are adopting those skill sets to better compete and succeed in the competitive oil and gas industry."

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