PwC US: US M&A Soar 135% on Foreign Investment, Shale Plays, Upstream Deals

The total value of U.S. oil and gas mergers and acquisitions (M&A) during the third quarter of 2011 jumped 135 percent as foreign investors continued to show interest in the energy sector, especially in taking positions in shale plays and upstream-related assets, according to PwC US.

In the third quarter of 2011, there were 46 deals with values greater than $50 million, accounting for $48.8 billion in deal value, a significant rise from the $20.8 billion during the same period in 2010. Third quarter average deal size increased to $131 million from $117 million in the same period in 2010, driven by 23 large deals with deal values over $250 million.

There were 15 corporate transactions with values greater than $50 million, generating 89 percent, or $43.4 billion, of total third quarter deal value – a 411 percent increase over the same period last year. Thirty-two asset deals with values greater than $50 million contributed $14.7 billion, compared to the same number of asset deals with a combined value of $12.4 billion seen during the third quarter of 2010.

"Despite a number of headwinds in the third quarter with volatile global equity markets and commodity prices, deals in the energy sector continued as companies sought to take advantage of opportunities in shale to gain technology know-how and diversify service offerings," said Rick Roberge, principal in PwC's energy M&A practice. "Large multinational corporations are able to withstand market volatility, and we're continuing to see them push through and get deals done – with their focus primarily in the upstream sector and shale-related plays. We are also continuing to see private equity look to energy deals as the space evolves. With financial sponsors making inroads and corporates very focused on oil and maximizing the value of current assets, we expect energy to remain one of the hottest sectors for deals."

For deals valued over $50 million, upstream deals made up 52 percent of activity in the third quarter of 2011 with 24 transactions accounting for $28.1 billion, or 57 percent of total third quarter deal value. Oilfield equipment followed in deal activity with 12 transactions totaling $7.3 billion, while midstream deals contributed $10.4 billion with four deals. There were six downstream deals with a total value of $3.1 billion.

According to PwC, there were 13 deals with value greater than $50 million related to shale plays in the third quarter of 2011, totaling $22.6 billion, or 46 percent of total deal value. Included in those shale deals were four transactions involving the Marcellus Shale totaling $3.6 billion and four Utica Shale deals with a total value of $3.1 billion.

"Shale-gas assets continue to attract vast interest from oil and gas companies with five of the top 10 largest deals in the third quarter involving shale plays," said Steve Haffner, a Pittsburgh-based partner with PwC's energy practice. "In the Marcellus Shale, we're seeing steady activity among the corporates despite the continued weakness of natural gas prices, including new players entering and existing companies expanding acreage.

"Interest in the Utica Shale also continues to build each quarter as companies are attracted to the potential for a stacked play and the cost savings associated with shared infrastructure given its proximity to the Marcellus," added Haffner.

For deals valued at over $50 million, foreign buyers announced 22 deals in the third quarter of 2011, which contributed $37.3 billion, or 76 percent of total deal value. Compared to the same period of 2010, activity stayed the same, although deal value jumped 185 percent in the third quarter of 2011 from $13.1 billion during the third quarter of 2010. Additionally, there were two financial sponsor-backed transactions over $50 million, representing $653 million, a decline from the eight deals that totaled $2.2 billion during the same period last year.

"In a rapidly-changing energy and global economic environment and in times when volatility is high, companies will need to understand all the shifting variables at play in order to complete a successful deal," said Roberge "This is the type of work that PwC helps clients with every day– figuring out the various scenarios so dealmakers are prepared to execute when the time is right."

PwC's Oil & Gas M&A analysis is a quarterly report of announced U.S. transactions with value greater than $50 million analyzed by PwC using transaction data from IHS Herold.

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