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Global upstream M&A transaction value up in 2014

Oilfield Technology,


According to IHS, despite a late-year plunge in crude oil prices, robust merger and acquisition activity (M&A) in the first 10 months of the year fuelled an increase in the total transaction value for global upstream oil and gas M&A deals in 2014, which rose 23% to US$173 billion.

This rebound in 2014 transaction value is particularly noteworthy for the industry after transaction value for global upstream oil and gas M&A deals fell by almost half during 2013 to US$ 140 billion, the lowest level since the 2008 recession. In 2013, rather than shopping for deals, oil and gas companies shifted their focus to developing their vast inventories of previously acquired reserves resources and acreage.

Christopher Sheehan, director of energy M&A research at HIS, commented: “The uncertainty caused by the severe decline in oil prices during the final two months of 2014 nearly brought deal activity to a standstill. Buyers and sellers are having difficulty reaching a consensus because of the oil price tumble, which is causing significant uncertainty for the industry. However, transformative acquisition opportunities typically arise at the bottom of the crude price cycle, so Repsol’s late year agreement to acquire Talisman Energy may be the tip of the iceberg for corporate consolidation if crude prices remain depressed throughout 2015. The deal may foreshadow further consolidation in the oil and gas industry”.

Another significant change in upstream M&A activity was a plunge in acquisitions by Asian and Caspian regional national oil companies (NOCs). Asian and Caspian regional NOCs were buyers in half of the 10 largest deals in 2013, but none of these companies were buyers in the 10 largest deals in 2014. Seven of the 10 largest worldwide deals involved North American-based E&Ps as either the buyer or seller in transactions that exceeded US$2 billion.

The value of overseas acquisitions by Chinese NOCs fell steeply in 2014 to less than US$ 3 billion from US$ 20 billion in 2013. However, private Chinese financial and industrial conglomerates emerged as more active buyers in the global M&A market. And the Chinese NOCs reached large, forward sale oil and gas supply agreements worth tens of billions of dollars with Russia, highlighting the strengthening of ties between Asian NOCs and Russia as sanctions reduce Western investment. Western integrated oil companies, such as Royal Dutch Shell, which divested approximately US$15 billion in worldwide upstream assets in 2014, were among the most active global market sellers during the year. Meanwhile, Middle Eastern NOCs increased their overseas acquisition spending.

According to HIS energy M&A research, worldwide deal count (which includes both asset deals and corporate deals) rose 4% in 2014, but remained well below the 10-year high in 2012. The number of worldwide asset transactions climbed by 4% in 2014, reversing the almost 10% decline in the prior year, noted IHS.

The corporate deal count rose only marginally from the 10-year low in 2013. Large-scale corporate consolidation was relatively absent for the second consecutive year, with only three corporate transactions above US$5 billion in 2014, including Repsol’s US$15.5 billion takeover agreement for Talisman. Global spending on unconventional assets in 2014 increased substantially to more than US$70 billion, after plunging by nearly 50% in 2013 to approximately US$45 billion. However, this total was almost 20% below the peak of US$85 billion in 2012.

The US represented nearly 50% of global upstream oil and gas transaction value in 2014. Four of the top five largest US deals targeted unconventional resources, led by Encana’s US$7.8 billion acquisition of Midland Basin private producer, Athlon Energy. Total US transaction value rose strongly from the five year low in 2013, with corporate deal value nearly quadrupling from a 10 year low, while asset deal value increased by one third.

For the second consecutive year, the majority of US deal value was from transactions in the Mid-Continent (29%), onshore Gulf Coast (16%), and Rocky Mountain (22%) regions. Deal activity continued to be modest in the Gulf of Mexico, with its US market share falling to 7% in 2014, from 12% in 2013. The percentage of US deal value represented by Appalachia, predominantly in the Marcellus and Utica shales, more than doubled year-over-year, to 16%. Only three of the 10 largest US deals targeted conventional resources.

IHS found that North America accounted for approximately 60% of global upstream deal value in 2014, up from 42% in 2013. Canada’s market share climbed from 7% to 13%, highlighted by Talisman’s portion of Canadian assets and Devon Energy’s US$2.85 billion sale of conventional, gas weighted reserves to Canadian Natural Resources.

Sheehan said: “Bargain hunters taking advantage of low implied values for North American gas asset divestment packages drove a significant increase in the natural gas weighting of acquired North American proved (1P0 reserves in 2014, following a 10-year low in 2013. Deals outside North America for proved probably (2P) reserves were more than 60% oil and liquids for the third consecutive year”.

Transactions outside North America dominated the top-20 largest global deals in 2013, but accounted for slightly less than half of the top 20 in 2014. The Russia and Caspian regions, impacted considerably by western sanctions, represented only 5% of global market share in 2014, after comprising approximately 25% the prior year. The percentage of global deal value more than doubled in the Asia-Pacific region, while it held steady in Europe and South and Central America, but declined sharply in the Africa and Middle East regions due to heightened political instability.

“Our IHS analysis of upstream companies indicated debt-laden oil and gas companies that are not well-hedged could increasingly become takeover targets in 2015:, Sheehan said. “The volume of global assets for sale could surge if oil prices continue to remain depressed during the first half of the year. Our new IHS Significant Energy Assets on the Market (SEAM) database, which is available on IHS Connect, is already tracking more than US$150 billion of oil and gas property and corporate opportunities and those opportunities are likely to expand”.


Adapted from a press release by Emma McAleavey.

Read the article online at: https://www.oilfieldtechnology.com/exploration/05012015/global-upstream-ma-activity-012/

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