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Global E&P Deals Climbing in Value, Says Consultant

Global merger and acquisition (M&A) deals in the exploration and production (E&P) sector reached $45 billion in the first three months of the year, with close to half of the transactions in North America's shales, Evaluate Energy said Tuesday.

The total deal value in the first quarter of 2011 "is higher than all but three quarters over the past three years," according to the UK-based consultant's Global M&A database, which tracks global E&P transactions on a daily basis.

"After taking a back seat to Latin America in 3Q2010, North America re-emerged as the key player in the global upstream M&A sector with the majority of deals conducted there in the past two quarters," the consultant said. "During 1Q2011 North America accounted for 45% of the deal value with over $20 billion worth of activity."

More than three-quarters of the deal value (78%) in the first three months came from shale resources, Evaluate Energy found. PetroChina's $5.4 billion deal to acquire a 50% stake in Encana Corp.'s Cutbank Ridge assets in the Montney Shale of British Columbia topped the list (see Daily GPI, Feb. 10).

"In a similar vein to the Indian government, China has taken an interest in the North American shale sector due to the possibility of developing their own undeveloped domestic resources," the report said. "With a near monopoly of shale expertise existing in North America, government-backed Asian companies have been aggressively luring partners in the U.S. and Canada to gather the required unconventional production techniques."

China demonstrated its intent to "master" domestic shale extraction in the first quarter, with state-owned China National Petroleum Corp. drilling the country's first horizontal shale gas well, noted Evaluate Energy.

Recently, consultants at Deloitte LLP said joint ventures in North American shale plays also were giving foreign companies a stepping stone to eventual ownership of U.S. energy companies (see Daily GPI, March 31).

Another noteworthy entrant in early 2011 into North America's shales was Australia's BHP Billiton Ltd., which paid $4.75 billion in cash to acquire Chesapeake Energy Corp.'s interests in the gas-weighted Fayetteville Shale play (see Daily GPI, Feb. 23). The deal also represented the first successful major acquisition for BHP since its failed attempts to acquire Rio Tinto late last year, said the report.

The PetroChina and BHP "major shale gas deals, which dominated the total value for the sector, showed that there is still an appetite for shale gas resources despite subdued gas prices," said the authors. "In terms of the number of deals, however, the oil-weighted Bakken and Eagle Ford plays have been dominant with over 40% of shale deals coming from these two plays."

The move by companies to acquire more oil versus gas-weighted shale properties may continue, as long as gas prices remain "suppressed" because of North America's oversupply of gas and because of its current lack of liquefied natural gas export facilities, the report said.

Following its "aggressive" portfolio sell-off in 2010, BP plc also made headlines in the first quarter involving two "major deals" in the first three months of this year. The transactions, noted the report, could signal where the producer plans to focus its future E&P efforts.

BP's first transaction this year was its strategic alliance, which may or may not be completed, with Russia's state-controlled oil company OAO Rosneft, involving a stock swap and deal to jointly explore Russia's Arctic region (see Daily GPI, March 28; Jan. 18).

"The second deal, which proved to be the largest E&P deal from any company during the quarter, saw BP acquiring a 30% interest in 23 offshore Indian fields from Reliance Industries for $7.2 billion. Reliance were keen to gain BP as a partner due to their vast experience in deepwater drilling, while BP sees India as a major future growth market."

However, BP wasn't the only major to undertake a "portfolio rationalization" in the quarter, said Evaluate Energy.

Houston-based ConocoPhillips completed the sale of its Russian-based Lukoil interest, with the remaining 6.6% stake sold on the open market for $3.3 billion. The producer plans to use the proceeds from the Lukoil sale to reduce debt and buy back shares. ConocoPhillips, as well as France's Total SA and Spain's Repsol YPF, in the first quarter "all divested stakes that they held in subsidiaries for a combined total of $10 billion."

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