Unconventionals continue to play a role in 2013 energy M&A

There has been record spending in the mergers and acquisitions (M&A) markets for several years now, and much of the spending in North America can be traced back to the shale revolution.

Daniel Pratt, IHS director, transaction, valuation, and risk research in the upstream group at IHS Inc., was part of a panel discussion that included Tim Day, managing director and co-head of buyout for First Reserve and Chad Michael, managing director, E&P, at Tudor, Pickering, Holt & Co., that focused on trends in asset transactions and energy finance at the NAPE Business Conference Wednesday.

Fueled by national oil companies and international buyers making acquisitions in North American shale gas, shale oil and tight oil basins, global transactions involving unconventional oil and gas resources reached a record high $75 billion in 2011, according to the IHS Herold 2012 Global Upstream M&A Review.

In 2012, disclosed upstream M&A spending reached a record breaking $232 billion and was dominated by three major transactions in the second half of the year, according to Wood Mackenzie’s annual M&A review. Excluding these deals (Rosneft/TNK-BP, CNOOC/Nexen, and Freeport/Plains), deal spend remained strong at $138 billion.

Four key themes were identified for 2012: Asian National Oil Companies (NOCs) significant buyers with $7 billion of spend; the major oil companies’ $60 billion swing from net buyers in 2011 to net sellers in 2012, dispensing with $56 billion of assets; continued high spend on unconventional oil and gas assets in North America; and a boom in LNG focused acquisition activity.

Spending on North American unconventional resources is expected to continue as, driven solely by the growth in tight oil and wet gas plays, total US liquids production could potentially reach in excess of 11.5 MMboe/d by the end of the decade, reversing a trend that spanned the previous four decades, Pratt noted.

And, while US unconventional and conventional resources continue to attract international investors in 2013, said IHS’s Pratt, market share outside North America has risen considerably in the first half of the year, pointing to the increasing interest in West Africa oil and East Africa gas due to both flush crude production and deepwater gas discoveries with LNG potential.

Not faring as well, he said, is European deal spend as economic/demand weakness continues in the region. Latin America experienced reduced deal value prior to recently held and upcoming Brazil license rounds, activity in Asia is modest, and Russia is a region in transformation, he continued.

Two continuing trends are Master Limited Partnerships (MLPs) acquiring producing oil and gas properties to feed dividend-based model, and private equity firms seeking bargains in natural gas with liquids-prone upside, he noted.

Two deals of note are Linn Energy’s recent takeover agreement for Berry Petroleum as it was the first E&P MLP corporate acquisition of a public corporation, and energy private equity firm First Reserve’s recent $500 million equity capital commitment to formally launch Century Midstream LLC, a new energy company focused on the development, acquisition and expansion of midstream assets across North America, with an emphasis on emerging liquids and liquids-rich shale plays.

 

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