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Asset Transactions Dominate US O&G Deal Volume, Value

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Asset Transactions Dominate US O&G Deal Volume, Value

Acquisitions of U.S.-based oil assets were the primary focus of merger and acquisition (M&A) activity in the third quarter, according to a recent PwC US report on M&A transactions in the upstream oil and gas industry.

U.S.-based oil and gas companies focused their M&A efforts on asset transactions in the third quarter of 2012, according to PwC US. Thirty-four asset deals took place in the third quarter with a total deal value of $31.4 billion, a 131 percent increase in total value over the same period last year and representing 93 percent of total deal value during the third quarter of 2012.

PwC noted that asset transactions represented nine of the top ten 'mega' deals with a value of $1 billion or more in the quarter.

"The third quarter had 10 'mega' deals, which were dominated by upstream asset transactions as oil and gas companies pursued oil plays due to natural gas prices continuing to remain depressed," said Rick Roberge, principal in PwC's energy M&A practice.

Roberge noted that companies in the third quarter were hunting for more profitable pure oil assets to satisfy demand of all stakeholders involved, including public company shareholders and private equity players. Asset transactions offer the opportunity to specifically target those types of properties. While a significant amount of capital is available, it's no longer just about getting a foot in the door with a specific play, but about the quality of the oil target, Roberge said.

"We're finding that not all shale plays are alike," Roberge told Rigzone. "Some areas are more productive than others, even within plays. It will cost more to target the oily part of the Eagle Ford, but the results will be even better."

Upstream deals comprised 54 percent of M&A deals valued at over $50 million in the third quarter, with 21 transactions accounting for $18.7 billion, or 55 percent of total third quarter deal value.

Sixteen deals with a value greater than $50 million related to U.S. shale plays were conducted in this year's third quarter. The number of deals, valued at $11.7 billion, was down from the 18 shale-related deals done in third quarter 2011.

The Bakken and Eagle Ford plays were the most active in terms of M&A deals valued at more than $50 million, with six deals valued at $4.4 billion done for Bakken assets and three deals valued at $658 million done for Eagle Ford assets.

Interest in other oily play such as the Utica shale as well as the Niobrara and Granite Wash also continues to grow due to the price of oil versus natural gas. Shale play acquisitions by larger companies will continue as the capital associated with larger companies will be needed to develop shale plays, Roberge said. Since major companies also under-invested in shale plays initially, larger companies also will continue to buy medium and smaller companies despite the recent focus on asset-only transactions.

Deal activity among master limited partnerships (MLP) has also risen in the past two years. While MLPS traditionally have been more active in the midstream sector, PwC anticipates more upstream MLP activity as the number of upstream MLPs grows and more are expected when the capital markets are more receptive, said Roberge. He noted the possibility of an independent oil company forming an MLP in which it can drop assets as they mature from the exploration phase to one of steady production and cash flow source.

Asian national oil companies and other foreign companies will continue to seek interests in U.S. shale plays. But while they've previously pursued joint ventures with U.S.-based producers, Roberge anticipates that more foreign companies will seek more straight corporate deals in order to operate or have more control of assets.

M&A activity for U.S. Gulf of Mexico properties in the third quarter marked at least a two-and-a-half year high in deal value in the region with five deals that had a total value of $7.4 billion.

"Now that the Gulf is clearly back in business for M&A, we believe oil and gas companies will increasingly look there for deal opportunities going forward," Roberge commented.



Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

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