The total value of U.S. natural gas and oil and mergers and acquisitions (M&A) in the first three months of this year was up 69% from the same period a year ago and the rest of 2011 promises to be strong, according to a survey by PwC US.
The Oil & Gas M&A analysis is a quarterly report of announced U.S. transactions valued at more than $50 million. PwC uses transaction data provided by John S. Herold Inc.
"While it's been a choppy and volatile first quarter for commodity prices, the number of deals we saw in the oil and gas sector continued at a brisk pace," said PwC's Rick Roberge, who is a partner in the energy practice. "There was a significant jump in first quarter total deal value and average deal size compared to a year ago with large and 'mega' deals back in play, which we attribute to the dominance of corporate transactions in the quarter.
"Combined with recent market support for $100 oil levels, helping buyers and sellers to agree on terms for potential asset transactions, we believe that the remainder of 2011 will be very robust for deal activity."
Shale natural gas properties remain a big draw for buyers. According to PwC, eight transactions each valued at more than $50 million related to shale gas properties for a total value of $9.7 billion. Two transactions in the Marcellus Shale together totaled $325 million.
"Shale gas plays remain very attractive to global oil and gas companies because of the abundant supply in the U.S.," said Steve Haffner, a Pittsburgh-based partner with PwC's energy practice. "The continued M&A activity in the Marcellus region has been mainly coming from the large, well-financed players, who have a longer-term vision, and can ride out the low natural gas prices we're seeing now.
"With the tremendous amount of shale related deal activity over the past few years, companies are also focused on building the necessary infrastructure to maximize the full potential of unconventional assets. While we're helping companies assess the market for ongoing shale transactions, we've also been helping support their understanding of the complex landscape, including the regulatory, legislative and business risks, so they can make the best informed investment decisions."
Several big sales contributed to a 76% increase in overall average deal value from a year ago. Forty-seven transactions in the latest quarter were valued at more than $50 million each, accounting for a total of $51.5 billion in deal value, versus $30.4 billion in the year-ago period. The average size of a transaction also jumped significantly to $1.1 billion from $620.9 million year/year. Twenty-three individual transactions were valued at more than $250 million.
Compared with the first three months of 2010, corporate transaction values more than doubled while volumes jumped 100% on eight corporate deals, said the report. Deal value from asset transactions rose 7% from $15.1 billion, while the number of deals in the latest quarter declined from 41 deals. According to PwC, 16 corporate transactions were valued at more than $50 million each and generated 68%, or $35.2 billion of total deal value in 1Q2011. Thirty-one asset deals with values of more than $50 million contributed $16.3 billion.
Upstream transactions made up almost three-quarters (73%) of the sales valued at more than $50 million, with a total of 27 transactions fetching $25.3 billion. Oilfield services contributed almost a quarter of the transactions value-wise, with seven alone totaling $12.8 billion. Six downstream and six midstream deals contributed $4.6 billion and $4 billion, respectively.
"Deals in the upstream sector dominated first quarter activity as more companies look to adjust their existing portfolios to align with current market conditions," said Roberge. "Companies are working to close on these deals to take advantage of higher oil prices while managing the longer-term prospects of unconventionals."
For sales valued at more than $50 million, foreign buyers were in seven in the first quarter of 2011, which contributed $17.6 billion (34%) of total transaction values. A year earlier there were 12 transactions valued at $17.2 billion. Eight private equity-backed transactions, representing $4.8 billion, or 9% of total deal value, were completed in the latest compared with only one private equity deal during the same period last year.
"Private equity firms continue to make a push into the energy sector, although they're facing stiff competition from corporates with strong balance sheets and a desire to make big investments like those we've seen in the first quarter," said Roberge. "As transaction prices get larger, the financial investment for companies and investors is becoming much more significant. When factoring in the various risks at play during the deal process, having a firm understanding of the fluid variables is critical to exploiting the opportunities and avoiding the risks of any transaction."
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