With an average of more than four transactions announced every day in 2012, the oil and gas sector has remained one of the most active global sectors for mergers and acquisitions. According to Ernst & Young's Global oil and gas transactions review, oil and gas transactions recorded a staggering US$402 billion in 2012, representing a 19 percent increase compared to 2011 (US$337 billion). Ninety-two transactions exceeded US$1billion in value compared to just 71 in 2011. This was despite a marginal decrease in oil and gas transaction volumes from 1,664 deals in 2011 to 1,616 in 2012.
Oil and gas transactions activity by segments
Upstream remained the most active segment with US$284 billion worth of transactions accounting for 71 percent of total deal values. North America continued to be the most dominant region for activity, accounting for approximately 52 percent of the upstream transactions volume. However, within North America, transaction volumes were supported by a rapidly growing Canadian deal market whilst the US market contracted.
Andy Brogan, Ernst & Young's Global Leader Oil & Gas Transaction Advisory Services, commented: "2012 saw a continuation of trends we have seen for the last few years supported by a relatively benign oil price environment. The increase in the number of larger deals was a function of more capital becoming available to the right class of buyer together with increased pressure from asset and company owners to crystallize returns."
Transactions values in the downstream segment were flat at US$42 billion, with volumes also fairly stagnant at 162 transactions (6 percent lower than 2011). The decline is particularly evident in the U.S. and South America, where transaction volumes have reduced by eight and seven transactions respectively.
"Companies remain cautious in mature markets due to the continuing downside risks for oil product demand, driven by the uncertain economic outlook and austerity measures. Storage facilities that deliver global connectivity and trading potential remain attractive to acquirers, with conversion of refining facilities also being considered," continued Brogan.
In contrast, transactions volumes in Asia have increased by nine transactions as demand for oil products continues to surge in the region.
The number of transactions in the midstream segment in 2012 decreased by 19 percent from 111 in 2011 to 90 in 2012. The reported deal value decreased significantly, from US$87.3 billion in 2011 to US$50.3 billion in 2012 due to the absence of a blockbuster deal such as Kinder Morgan's acquisition of the El Paso group. North America accounted for 78 percent of all midstream transactions, but this was a decline from the 83 percent dominance of the region in 2011. Midstream activity levels will likely continue to increase outside of North America as infrastructure ownership further disaggregates from upstream assets, driven by capital allocation and regulatory factors.
Oilfield services fastest-growing segment for a second year
The fastest-growing segment for transaction volumes was oilfield services, repeating last year's healthy growth. Total oilfield service volume of 212 deals was up almost 10 percent. The aggregate deal value in 2012 dropped by a third to US$26 billion, reflecting the absence of deals with scale comparable to the US$8.7 billion Ensco-Pride merger of 2011.
Brogan said: "Financial investors showed an increased appetite for oilfield services transactions, playing a role in three of the segment's top 10 deals. Access to new technologies, particularly around subsurface applications, which supports expansion into hard-to-access growth markets, fueled trade players activity.
Transactions activities by region
Africa's transaction volume increased from 93 in 2011 to 97 in 2012. Although there has only been a moderate increase in reported transaction volume with reported transaction values growing significantly with US$11.7 billion of deals in 2012, up from US$7.7 billion reported in 2012. Sinopec's US$2.5 billion acquisition of Total's 20 percent interest in Nigerian deepwater block OML 138, the largest oil and gas transaction in Africa during 2012, gave a significant boost to the average deal value. The expected outlook for 2013 is for greater deal flow and consistency with the 2012 regional trends.
Australia's transaction activity was again relatively subdued. The number of deals remained steady at 86 compared to 84 last year, with limited opportunities available for M&A activity. However, the deal value more than doubled from US$7.8 billion to US$16.2 billion. Consistent with 2011, most of the transactions (88 percent) were in the upstream sector. This trend is likely to continue into 2013.
Canada's oil and gas industry continues to be very active. The volume of transaction activity in 2012 was up 18 percent compared to 2011 (228 vs. 193) but was dramatically higher in terms of deal values, led predominantly by the upstream sector. Deal value increased by 241 percent year-on-year, from US$15.2 billion to US$51.9 billion, mainly as a result of the US$15.1 billion CNOOC and US$5.8 billion Petronas deals. In 2013, Foreign investors will likely be placing renewed emphasis on entering strategic alliances and joint ventures, with Canadian domestic partners retaining some form of control.
The CIS region showed significant activity and the landmark oil and gas transaction of the year. The deal value of transactions in 2012 tripled when compared to 2011 and reached US$77.3 billion, mostly as a result of the acquisition of TNK-BP by the Russian NOC, Rosneft. However, the number of deals was down slightly from 2011.
Europe's oil and gas sector delivered strong activity in 2012. Overall transaction volumes of 179 fell short of 2011's 189 deals, but their combined value of US$29.3 billion exceeded the 2011 level of US$24.1 billion. Upstream, where European activity centers on the North Sea, delivered the greatest share of deal volume. Upstream transaction volume of 139 was down slightly from the 146 deals in 2011. Overall deal value of US$11.7 billion in 2012 compares with US$10.6 billion in 2011.
Asian NOCs continued to invest in overseas acquisitions backed by robust cash reserves. Major transactions were largely driven by the Chinese NOCs that shifted focus slightly to acquiring stakes in upstream assets in more developed countries, particularly unconventional plays in North America.
India's dependence on energy imports continues to increase given the country's stagnant domestic production and heightened demand of oil and gas. Over the coming quarters, deal activity is likely to increase given the various initiatives to augment energy security in the country. India provides significant opportunities, especially in the upstream and LNG segments.
State-owned companies are likely to forge partnerships with foreign companies to carry out E&P activities, especially in deepwater blocks, and to increase production from maturing domestic fields. At the same time, outbound deals are likely to increase as Indian companies step up plans to acquire oil and gas assets abroad.
Middle East transactions in value terms remained concentrated in Kurdistan, with four of the five biggest deals concerning assets or operations on the oil-rich region of Iraq. Overall, there were 45 transactions in the MENA region, an increase of 14 percent over 2011. The size of transactions decreased with the average transaction size reducing from US$3.6billion to US$2.8 billion. Looking forward, we expect activity to continue based on current trends with political uncertainty in North Africa continuing to depress activity there.
The U.S.'s oil and gas transaction market experienced a softening in 2012 vs. modest deal activity in 2011, but still remained over 10 percent above activity during the most recent oil and gas transaction cycle lows experienced in late 2008 and 2009. Overall, deal values decreased 10 percent in 2012 vs. 2011, while volume decreased almost 15 percent over the same period. U.S. transactions still accounted for almost 40 percent of total global oil and gas transactions values and volumes during 2012, down from approximately 50 percent and 45 percent respectively, in 2011. The air of uncertainty looks set to remain for the coming year.
Outlook in 2013
Brogan concludes: "2013 appears to face many of the same geopolitical and economic uncertainties as 2012 and unfortunately these do not seem likely to be fully resolved soon. However, in the absence of material shocks, we currently expect the sector to continue to be resilient in M&A terms as the key strategic drivers remain the same and participants have become accustomed to making decisions in a highly uncertain environment.
"While capital availability is generally improving (especially debt), funding will remain a challenge for smaller companies for both debt and equity, and we continue to expect cash constraints coupled with cost escalation to be a driver for both asset and corporate opportunities. Those at the larger end of the scale with stronger balance sheets are likely to be the beneficiaries of this."
WHAT DO YOU THINK?
Click on the button below to add 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.
Most Popular Articles
From the Career Center
Jobs that may interest you