Upstream merger and acquisition (M&A) activity worldwide hit a record $107 billion in total asset deal value in 2010, which is 160% higher than in 2009, according to preliminary findings by research firm IHS.

Despite persistently weak natural gas prices, gas-weighted, proved reserve deal-pricing in the United States -- considered the world's most liquid M&A market -- actually rose slightly year/year to $11.79/boe from $11.26. Domestic deal pricing last year for proved, oil-weighted transactions rose sharply to $16.51/boe from $12.72/boe.

"There were three primary drivers that led to the record asset deal value," said Christopher Sheehan, who directs M&A research at IHS. He pointed to "sustained strength in oil prices reinforced by growing confidence in the economy, large packages of attractive producing assets on the market and low natural gas prices in North America."

The final report is to published in March in the IHS Herold 2011 Global Upstream M&A Review. The preliminary report indicated that asset spending in 2010 was driven by:

Total global upstream M&A transaction value, including corporate mergers, jumped by $16 billion to $160 billion, even though there were no corporate mergers of more than $10 billion in 2010.

Corporate transaction value actually retreated to about $53 billion in 2010 after spiking in 2009 on two North American mergers: ExxonMobil Corp.'s buyout of XTO Energy Corp., and Suncor's takeover of Petro-Canada Corp. ExxonMobil's XTO purchase made it the largest North American gas producer, while Suncor's deal made it Canada's largest producer.

Many oil and gas companies last year moved to "restructure, refocus or expand their portfolios as an improving global economy engendered confidence in steady high oil prices," Sheehan said.

"National oil companies seized the opportunity to purchase hard assets in a strategic expansion of their global natural resource holdings. In addition, continued low North American natural gas prices provided attractive opportunities for well financed new entrants to invest in shale and tight sands plays. At the same time, rising equity prices made the pursuit of corporate acquisitions more expensive."

In North America asset transaction value last year more than doubled to $59 billion, although the region's share of total global upstream transaction value slipped to 54% in 2010 from 68% in 2009 because the 2009 value was inflated by corporate mergers.

"While North American activity in 2010 was dominated by shale resource investment, including a more than 150% year-on-year increase on U.S. asset deal spending, ongoing regulatory uncertainty in the Gulf of Mexico following the deepwater Macondo spill led to only sporadic transaction flow there," the report noted.

Unconventional resources represented more than one-third of total worldwide upstream transaction value, or $57 billion, in 2010, according to IHS.

"This high figure is steady with 2009 values, which included more than $30 billion attributable to the ExxonMobil-XTO merger. The major trends surrounding unconventional resources in 2010 were a near doubling of assets deals focused on tight gas plays and a more than tripling of transactions focused on the Canadian oilsands," IHS said.

"The Canadian oilsands assets were more attractive to international investors due to the combination of improved project economics boosted by higher crude oil prices, and a welcoming climate for cross-border M&A by the Canadian government," Sheehan noted.

According to IHS, the biggest jump in upstream transaction value was recorded in Latin America, where deal value soared to $29 billion, "a milestone fueled by Chinese NOCs expanding their upstream footprint in the Americas, including gaining access to Brazil's immense deepwater pre-salt resources," said IHS.

"To put this phenomenal growth in perspective, Latin America accounted for 18% of the worldwide upstream transaction value in 2010 -- skyrocketing sixfold above the 2009 transaction value that represented just 3% of the global total."

Total transaction value more than tripled to $18 billion in Asia-Pacific, while activity was flat or lower in Europe, Africa, the Middle East and the Former Soviet Union, said IHS. The volume of distressed assets on the market dampened deal pricing gains in 2010 compared with the previous year.

NOCs and sovereign wealth funds (SWF) "dramatically increased their acquisition of global upstream assets to feed their rapidly growing economies in 2010," according to IHS. "Total NOC and SWF transaction value reached $32 billion, or 20% of the global total in 2010, which was up from 13% of worldwide transaction value in 2009. Total global purchases by the Chinese NOCs increased from $14 billion in 2009 to $26 billion in 2010."

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