Oil and natural gas mergers and acquisitions (M&A) “slowed dramatically” in the first three months of this year from 2012, with activity slipping about 40% from the full-year 2012 average and inventory down by almost one-third, according to PLS Inc. However, as it has been for a few years, North America continued to draw the most interest and the most dollars, pulling in close to two-thirds of the transactions by dollar value and almost 80% of the total deals.
Houston-based researcher PLS and Derrick Petroleum Services provided the quarterly M&A activity report.
North America’s $13.7 billion in transactions led the global market and accounted for 65% of the transactions by dollar value, up from a 61% share in the final three months of 2012, excluding the $61 billion purchase by Russia’s OAO Rosneft of TNK-BP (see NGI, March 25). North America also captured 84 of the 106 disclosed transactions in the latest quarter.
“In North America, buyers are getting an upper hand for early-stage and higher risk projects,” said PLS Managing Director Brian Lidsky. “Counter balancing this, however, are rising natural gas prices in North America. Also, highly prized resource play positions, particularly ones that are operated, derisked and going into full development will continue to command premiums.”
However, activity was down even in the most robust region of the world. The United States still accounted for the lion’s share of activity, with 63% of deal value and 51% of deal count, according to PLS. However, domestic activity fell 42% year/year to 54 transactions from 94, and it also was down 33% from its 2012 quarterly average. The deal value slipped 63% to $13.1 billion, and it was down 36% from the 2012 quarterly average.
“After a record level of activity late in 2012 due to U.S. fiscal cliff concerns, the oil and gas deal markets slowed dramatically in early 2013 as buyers digested their acquisitions,” said Lidsky. “While deal activity was down, several large-impact deals provide insight to current market dynamics and drivers,” such as the first acquisition by a master limited partnership/limited liability company of a C-corporation, Linn Energy LLC’s $4.3 billion offer for Berry Petroleum Co. (see NGI, Feb. 25). The Linn deal also was the largest U.S. transaction in the quarter.
“Traditionally, these buyers have been restricted to purchasing long-lived, low-risk cash flowing assets and are able to pay top dollar; through prudent hedging, cost controls and ability to tap the capital markets as necessary.”
The trend of Chinese national oil companies (NOC) buying global energy assets continued, with three of the top five deals purchases by Chinese buyers, including two in the United States. China’s Sinochem Petroleum USA LLC paid $1.7 billion to buy a stake in the Wolfcamp Shale from Pioneer Natural Resources Co.; Denbury Resources Inc. paid $1.05 billion purchase of ConocoPhillips’ properties in the Cedar Creek Anticline of North Dakota and Montana; and Sinopec International Petroleum Exploration and Production Corp. paid $1.02 billion for Chesapeake Energy Corp. acreage in the Mississippian Lime.
“Regarding U.S. upstream valuations, average multiples for oil are in the $110,000 per b/d, or $23.00 per proved bbl,” with an average reserves/production (r/p) ratio of 14 years. “For gas, average multiples are $5,300 per Mcf/day and $1.40/Mcf proved,” with an average r/p of 11 years, PLS noted.
Canada saw numerous small deals, accounting for 28% of the total global transactions, even though the values slipped to under 3%, compared to a trailing four-quarter global market share of 20%, PLS noted Canada’s biggest transaction was the completion by NOC China National Offshore Oil Co. (CNOOC) to buy Nexen Inc. for $17.9 billion.
“While Canada and the United States finally approved CNOOC’s acquisition of Nexen, they did so with some hesitancy,” noted Derrick Director Mangesh Hirve. “In Canada, the government signaled this to be the last deal of its kind that would grant a NOC rights to take a majority stake in Alberta’s strategic oilsands. That being said, Chinese NOC’s buying spree continued, taking a record 41% share of the overall market this quarter with $8.6 billion of buys. Since 2008, this latest buying brings Chinese NOCs total over the $100 billion mark to $104.7 billion.”
Of the total global deals that were disclosed, M&A activity in 1Q2013 fell to $20.6 billion on 106 transactions, versus one year earlier when there were 197 deals disclosed worth a total of $41.9 billion. Including transactions without price disclosures, the deal count was 176 in 1Q2013. A record $140.9 billion in 208 transactions were announced in the final three months of 2012.
According to PLS, 1Q2013 deal value totals were the lowest since 1Q2007, when there were deals totaling $21.8 billion in value, and the total deal count was the lowest since it recorded 64 deals in 1Q2009, the quarter following the U.S. financial crisis. For perspective, the average annual pace of deals worth more than $1 billion from 2007-2012 is 37.
Regionally, in terms of deal value in 1Q2012, North America ($13.7 billion) was followed by Africa ($4.2 billion), the FSU, or Former Soviet Union FSU ($1.4 billion) and Europe ($900 million). All other regions tallied totals of less than $500 million. Five deals topped $1 billion globally, with four in the United States and one in Mozambique, compared to a record 22 deals in 4Q2012.
As of March 31, PLS and Derrick estimated that $116 billion of assets were on the market, up from $85 billion at the end of 2012. The biggest U.S. deal in play that was announced in 1Q2013 is Chesapeake and Statoil ASA’s plan to market some Marcellus Shale assets. In Canada, Talisman Energy Inc. is seeking a joint venture partner in the Montney Shale.
“The United States has the largest inventory of deals on the market with an estimated at $35 billion, followed by Canada ($15 billion) and Australia ($11 billion),” noted PLS.
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