Global Oil and Gas Upstream M&A 2009 Review: New Assetsand New Buyers Bring Deal Value to US$153 Billion
Monday, Mar 08, 2010
PLS, Inc. with its international partner Derrick PetroleumServices and further analysis from Rystad Energy report, despite adifficult economic cycle, Global Upstream M&A activity for oil andgas deals in 2009 totaled $153 billion and surpassed the pre-crashlevels in 2007. According to Brian Lidsky, Managing Director ofHouston-based research, transactions and advisory firm PLS, Inc.,"Despite the recovery in the total dollar amount of Global oil and gasdeals in 2009, the markets have not yet fully recovered as tracked bythe number of actual transactions above the $100 million mark, whichcame in at 124 in 2009 versus 160 in 2008 and 168 in 2007. Furthermore,the 2009 market is characterized by new buyers and new assets, a trendwe believe will continue in 2010 and beyond."
Oil and gas valuations globally, based on an evaluation of the $100million plus deal market and prices paid per 2P entitlement reserves,ended 2009 at the $14.40 per BOE level, up 40% from a trough number of$10.20 per BOE seen in Q1 2009 but down from the $20.90 per BOE peakseen in Q1 2008. In the U.S., valuations for 1P oil reserves ended theyear at about $14.10 per barrel, down 25% from the 2008 peak. For 1P gasreserves, values ended 2009 at about $1.80 per Mcf, down 40% from the2008 peak.
The oil and gas deal markets have shifted to a new paradigm and newasset types - namely unconventional oil and gas production primarilysourced from gas shales, tight gas sands and oil sands. This asset classgarnered 45% of the market in 2009, up dramatically from just 9% in2007.
On the buyer side, foreign National Oil Companies ("NOC's") andGovernment-backed entities represented 50% of all deals greater than $1billion in 2009; also marking a shift to a new buyer profile in the oiland gas markets. The traditional major international oil companies("IOC's") had limited activity, but when active the IOC's focused onunconventional assets. A prime example was ExxonMobil's $41 billionpurchase of U.S. independent XTO Energy.
Interestingly, $35 billion of the $153 billion in 2009 is classifiedas cross-border transactions. According to Yashodeep Deodhar, Presidentof Derrick Petroleum Services, "The Chinese NOCs clearly are on a globalbuying spree, having accounted for 45% of the deal value incross-border deals. In 2009 alone, China spent $16 billion gainingfootprints in Canadian oil sands, the Gulf of Mexico, Nigeria, Gabon,Trinidad and Tobago, Ecuador, Syria, Iraq, Iran, Indonesia andKazakhstan." Following China in cross-border deals are the Europeanmajors (primarily into the U.S. shales, $5.6 billion) and Korea (3deals, $5.25 billion).
Dissecting the oil and gas markets even further reveals anothermarket shift in 2009. Pure asset deals accounted for 28% of the volumein 2009, down markedly from 65% in 2007. Volatility in oil and gasprices and economic conditions early in 2009 drove this shift ascompanies found it more effective to buy entire companies rather thanattempt to complete a deal where both buyer and seller could agree onthe price of an asset.
In terms of emerging trends, Africa continues to be a growing area ofinterest for buyers with its share of the global market growing to 14%in 2009, up from 5% in 2007. According to Anders Wittemann, ConsultingManager with Rystad Energy, "Hess and Shell's cross-border swap of NorthSea and Gabon assets, valued by Rystad Energy at $2.9 billion, ranksthe deal at the #9 spot for 2009. This is a unique example of portfoliomanagement driving strategic and operational goals. Hess is a globalleader in cross-border asset swaps and both companies demonstratedpersistence and flexibility through this transaction."
According to Lidsky, "Looking forward, we currently have more than$46 billion of deals on the market and have already transacted $18billion in the first two months of 2010. For perspective, in May 2009,we only had $20 billion of deals on the market. The markets are wellsupplied - particularly on the asset side. The difficult cycle theindustry is coming out of requires managers to laser focus on executionand strategy."
Drivers for oil and gas M&A deals in 2010 include, (1) NorthAmerican companies focusing on resource plays and divesting conventionaland/or cash flowing assets, (2) capital needs for world classdevelopment projects, and (3) normal portfolio balancing and riskmanagement.
For more on the 2009 Study or the M&A Database, please contactPLS, Inc. at (713) 650-1212.
PLS, Inc. and Derrick Petroleum Services are partners in providingU.S., Canadian and International clients with leading M&A andE&P databases and services.
PLS, Inc. is a leading industry research, transactions and advisoryfirm based in Houston, Texas.
Derrick Petroleum Services is an independent oil and gas research andconsulting firm with special emphasis on emerging plays andtransactions internationally.
Rystad Energy is an independent and integrated E&P advisory andbusiness intelligence data firm offering global database applications,stand-alone research products and strategy consulting services.
Source: PR Newswire