Study Finds Record Value for 2010 O&G Transactions

Worldwide transactions involving upstream oil and gas (O&G) assets reached a record $107 billion in 2010, a 160 percent increase above 2009 transaction values in total asset deal value, according to preliminary results in the IHS Herold 2011 Global Upstream M&A Review. The increase was driven by spending by national oil companies (NOCs), major divestiture programs by BP (to pay for the Macondo oil spill), ConocoPhillips, Suncor Energy and Devon Energy, as well as major joint ventures focused on North American unconventional resource plays.

Total global upstream mergers and acquisition (M&A) transaction value, including corporate mergers, rose by $16 billion to $160 billion, although there were no corporate mergers greater than $10 billion in 2010. Corporate transaction value retreated to approximately $53 billion in 2010 after spiking on the ExxonMobil – XTO and Suncor Energy – Petro-Canada mergers in 2009.

Three primary drivers that led to the record asset deal value, said Christopher Sheehan, director of M&A research at IHS. These drivers included sustained strength in oil prices reinforced by growing confidence in the economy, large packages of attractive producing assets on the market, and low natural gas prices in North America.

In 2010, many oil and gas companies moved to restructure, refocus or expand their portfolios as an improving global economy engendered confidence in steady high oil prices. National oil companies seized the opportunity to purchase hard assets in a strategic expansion of their global natural resource holdings.

"In addition," Sheehan said, "continued low North American natural gas prices provided attractive opportunities for well-financed new entrants to invest in shale and tight sands plays. At the same time, rising equity prices made the pursuit of corporate acquisitions more expensive."

Asset transaction value more than doubled to $59 billion in North America in 2010, although the region's share of total global upstream transaction value slipped to 54 percent in 2010 from 68 percent in 2009, (the 2009 value was inflated by corporate mergers). While North American activity in 2010 was dominated by shale resource investment, including a more than 150 percent year-on-year increase on U.S. asset deal spending, ongoing regulatory uncertainty in the Gulf of Mexico following the deepwater Macondo spill led to only sporadic transaction flow there.

Latin America recorded the biggest increase in upstream transaction value, according to IHS, with deal value soaring to $29 billion, a milestone fueled by Chinese national oil companies expanding their upstream footprint in the Americas, including gaining access to Brazil's immense deepwater pre-salt resources. Latin America accounted for 18 percent of the worldwide upstream transaction value in 2010 – skyrocketing six-fold above the 2009 transaction value that represented just three percent of the global total.

Total transaction value more than tripled to $18 billion in Asia-Pacific, while activity was flat or lower in Europe, Africa, the Middle East, and the Former Soviet Union. The volume of distressed assets on the market dampened deal pricing gains in 2010 compared with the previous year.

Weighted, average oil and gas proved-reserve deal-pricing rose to $10.59/per barrel of oil equivalent (boe) in 2010 from $9.72/boe in 2009. Deal pricing for proved, oil-weighted transactions increased to $9.78/boe in 2010 from $8.48/boe in 2009. In the U.S., deal pricing for proved, oil-weighted transactions increased sharply from $12.72/boe in 2009 to $16.51/boe in 2010. Despite persistently weak natural gas prices, gas-weighted, proved reserve deal-pricing in the United States (the world's most liquid upstream M&A market) actually rose slightly from $11.26/boe in 2009, to $11.79/boe in 2010.

Unconventional resources represented more than one-third of total worldwide upstream transaction value, or $57 billion, in 2010. This high figure is steady with 2009 values, which included more than $30 billion attributable to the ExxonMobil – XTO merger. The major trends surrounding unconventional resources in 2010 were a near doubling of assets deals focused on tight gas plays and a more than tripling of transactions focused on the Canadian oil sands.

"The Canadian oil sands assets," Sheehan noted, "were more attractive to international investors due to the combination of improved project economics boosted by higher crude oil prices, and a welcoming climate for cross-border M&A by the Canadian government."

NOCs and sovereign wealth funds (SWF) dramatically increased their acquisition of global upstream assets to feed their rapidly growing economies in 2010. Total NOC and SWF transaction value reached $32 billion or 20 percent of the global total in 2010, which was up from 13 percent of worldwide transaction value in 2009. Total global purchases by the Chinese NOCs increased from $14 billion in 2009 to $26 billion in 2010.


Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.


Our Privacy Pledge

Most Popular Articles

From the Career Center
Jobs that may interest you
Project Manager
Expertise: Engineering Manager|Project Engineer
Location: Columbia, SC
Project Manager
Expertise: Engineering Manager
Location: Atlanta, GA
Project Manager
Expertise: Engineering Manager|Project Engineer
Location: Raleigh, NC
search for more jobs

Brent Crude Oil : $51.78/BBL 0.77%
Light Crude Oil : $50.85/BBL 0.83%
Natural Gas : $2.99/MMBtu 4.77%
Updated in last 24 hours