China's and Korea's national oil companies (NOC) stood out as particularly acquisitive in a mergers and acquisitions (M&A) market last year that saw NOCs as mostly buyers and international oil companies (IOC) as mostly sellers, according to consultancy Wood Mackenzie. There were exceptions, however, as some IOCs had their checkbooks out in a big way, too.
Last year's market was liquid with annual asset deal expenditures reaching a new high of US$117 billion, underpinned by portfolio restructuring across the sector, the firm said. [IHS recently pegged worldwide upstream M&A activity last year at $107 billion, still a record (see Daily GPI, Jan. 4)].
Aggressive spending by Asian companies was one feature of last year's market, combined with the rising profile of unconventional oil and gas plays; weak natural gas prices in the United States and the consequent rising interest in liquids-rich plays; as well as restructuring among some of the IOCs, Wood Mackenzie lead M&A analyst Luke Parker said in the firm's latest report on global upstream M&A.
Peak levels of deal activity in 2010, particularly at the end of the year, bode well for another big year in 2011, Parker said.
"The biggest driver of M&A activity in 2010 was unconventional resources, and they are likely to remain so for the coming year. The market was underpinned by a steady stream of mid-sized deals -- 20 in the US$1 billion-5 billion range -- whereas 2009 was dominated by two 'mega-deals' -- Suncor-PetroCanada (US$19 billion) [see Daily GPI, March 24, 2009] and ExxonMobil-XTO (US$41 billion) [see Daily GPI, Dec. 15, 2009]," Parker said.
U.S. shale gas, in particular, had an exceptional year in 2010 -- continuing a steady increase in deal activity over the last five years -- with acquisition spend amounting to US$39 billion, equivalent to 21% of all global M&A activity. There also was a year-on-year increase in Canadian oilsands-related spending, with notable acquisitions by Total, BP plc, Devon Energy and the Asian NOCs, the firm noted.
"Weakness in the U.S. gas price saw investment increasingly shift toward liquids-rich shale gas plays over the course of the year," Parker said. "Shifting strategies amongst smaller onshore U.S. players, struggling in the weak gas price environment, was another key driver."
The end of last year saw a flurry of shale oil transactions centered around the Bakken play; Parker expects more of the same this year. "In the last two months of 2010, there were four US$1 billion-plus Bakken deals announced, pushing cumulative M&A spend in North American tight oil beyond US$15 billion," he said.
Toting up the deals, Parker found that NOCs "were almost exclusively acquisitive."
Chinese NOCs together with the Korean National Oil Co. (KNOC) and Thailand's PTTEP invested US$35 billion in overseas acquisitions. This pushed total NOC cross-border spending as a proportion of global M&A to 19%, marking the sixth successive year in which the NOCs have increased their share of the market, according to the firm's analysis
Last year was also the year that the NOCs outspent the majors by US$16 billion and for the first time made "real headway in the United States and Canada." Sinopec and China's CNOOC were the biggest spenders, but KNOC significantly stepped up activity and PTTEP entered North America through a transformational deal in the Canadian oilsands, according to Wood Mackenzie.
"This peer group is focused on long-life resource capture -- hence the attraction of [liquefied natural gas], deepwater, unconventional gas and heavy oil -- so we can expect more nonoperated stakes, aggressive buying overseas and potentially some big-ticket acquisitions in 2011," Parker said.
On the sell side, BP plc, ConocoPhillips, Devon Energy Corp. and Chesapeake Energy Corp. combined sold US$45 billion of assets last year -- US$5 billion more than the total market for assets in 2009. "Many other companies took the opportunity to sell assets into a buoyant market," Parker said.
But not all of the IOCs were sellers last year. Among the majors peer group, Chevron Corp., Royal Dutch Shell plc and Total SA made a notable return to acquisitions in 2010, the firm found. Among the large cap companies, Apache Corp. and Occidental Petroleum Corp. -- which Wood Mackenzie had previously noted as facing challenges in organic growth -- were buyers.
"Despite high levels of liquidity, 2010 was not characterized as a buyers' market. Competition for growth assets was intense and supportive of value in the vast majority of deals," Parker said.
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