By Mohammed Jetutu
Upstream Oil and Gas Asset Acquisitions were flat in Africa and Europe, while they surged in the Americas, helping to create a record global high of $l07Billion.
IHS Energy, the global firm of hydrocarbon industry scouts, reports that deal value for oil and gas assets increased 160 percent above 2009 figures, driven in part by sustained high oil prices and global expansion by national oil companies
But where as Asset transaction value more than doubled to $59 billion in North America in 2010, and more than tripled to $18 billion in Asia-Pacific, there was comparatively far less dealing in Europe, Africa, the Middle East, and the Former Soviet Union. The preliminary results in the IHS Herold 2011 Global Upstream M&A Review, released
IHS Energy, notes that the big asset sale was driven by spending by:
- National oil companies,
- Major divestiture programmes by BP (to pay for the Macondo oil spill),
- Suncor Energy and
- Devon Energy, as well as
- Major joint ventures focused on North American unconventional resource plays.
“Total global upstream mergers and acquisition (M&A) transaction value, including corporate mergers, rose by $16 billion $160 billion” the report indicates, “although there were no corporate mergers greater than $10 billion in 2010”. Corporate transaction value retreated to approximately $53 billion in 2010 after spiking on the ExxonMobil – XTO and Suncor Energy – Petro-Canada mergers in 2009.
The report’s executive summary, which was released as of our going to press, didn’t give any comparable value on deals in Africa, nor provide analysis on M&A activity on the continent in any detail. Still, to get a sense of such oil and gas asset transaction in Africa in 2010, consider the example of BP’s $7Billion worth of sale of assets to Apache Corp., the American independent, in three regions of the world. Apache paid $6.35 billion for all the assets it acquired in the US Permian Basin and Canada, with $3.l bilion for Permian Basin portfolio and $3.25billion for the Canadian properties. In contrast, Apache paid $650 million to acquire four development leases and one exploration concession across 394,300 acres in Africa, specifically, Egypt.
Elsewhere on the continent, Shell, TOTAL and ENI collectively sold their equity in four leases in Nigeria for slightly less than $500Million. The biggest asset sale in Africa in 2010 was the acquisition, by Tullow Oil, of Heritage’s 50% stakes in Uganda’s Blocks 1 and 3A for $1.45Billion.
“There were three primary drivers that led to the record asset deal value,” said Christopher Sheehan, director of M&A research at IHS, “sustained strength in oil prices reinforced by growing confidence in the economy, large packages of attractive producing assets on the market, and low natural gas prices in North America. In 2010, many oil and gas companies moved to-restructure, refocus or expand their portfolios as an improving global economy engendered confidence in steady high oil prices. National oil companies seized the opportunity to purchase hard assets in a strategic expansion of their global natural resource holdings. In addition,” he said, “continued low North American natural gas prices provided attractive opportunities for well-financed new entrants to invest in shale and tight sands plays. At the same time, rising equity prices made the pursuit of corporate acquisitions more expensive.”
In spite of the significant rise in Asset transaction value in North America in 2010, the region’s share of total global upstream transaction value slipped to 54 percent in 2010 from 68 percent in 2009, (the 2009 value was inflated by corporate mergers). While North American activity in 2010 was dominated by shale resource investment, including a more than 150 per- CPT cent year-on-year increase on U.S. as- set deal spending, ongoing regulatory uncertainty in the Gulf of Mexico following the deepwater Macondo spill led to only sporadic transaction flow there.
M & A Activity in Latin America Soared
According to IHS, the biggest increase in upstream transaction value was recorded in Latin America, where deal value soared to $29 billion, a milestone fueled by Chinese national oil companies expanding their upstream footprint in the Americas, including gaining access to Brazil’s immense deepwater pre-salt resources. To put this phenomenal growth in perspective, Latin America accounted for 18 percent of the worldwide upstream transaction value in 2010 – skyrocketing six-fold above the 2009 transaction value that represented just three percent of the global total.
Even so, in total, the volume of distressed assets on the market dampened deal pricing gains in 2010 compared with the previous year. Weighted, average oil and gas proved-reserve deal-pricing rose to $10.59! per barrel of oil equivalent (boe) in 2010 from $9.72/bee in 2009. Deal pricing for proved, oil-weighted transactions increased to $9.78/BOE in 2010 from $8.48/BOE in 2009. In the U.S., deal pricing for proved, oil-weighted transactions increased sharply from $12.72/BOE in 2009 to $16.51/BOE in 2010. Despite persistently weak natural gas prices, gas-weighted, proved reserve deal- pricing in the United States (the world’s most liquid upstream M&A market) actually rose slightly from $11.26/BOE in 2009, to $11.79/ BOE in 2010.
Transactions for Unconventionals Remained Robust; National Oil Companies Accounted For More Than 20 Percent of Global Spending Unconventional resources represented more than one-third of total worldwide upstream transaction value, or $57 billion, in 2010. This high figure is steady with 2009 values, which included more than $30 billion attributable to the ExxonMobil – XTO merger. The major trends surrounding unconventional resources in 2010 were a near doubling of assets deals focused on tight gas plays and a more than tripling of transactions focused on the Canadian oil sands.
“The Canadian oil sands assets,” Sheehan noted, “were more attractive to international investors due to the combination of improved project economics boosted by higher crude oil prices, and a welcoming climate for cross-border M&A by the Canadian government.”
NOCs and sovereign wealth funds (SWF) dramatically increased their acquisition of global upstream assets to feed their rapidly growing economies in 2010. Total NOC and SWF transaction value reached $32 billion or 20 percent of the global total in 2010, which was up from 13 percent of worldwide transaction value in 2009. Total global purchases by the Chinese NOCs increased from $14 billion in 2009 to $26 billion in 2010.
For more information on the IHS Herold M&A Database and transaction analysis, please contact firstname.lastname@example.org. To speak with IHS analyst Christopher Sheehan regarding the IHS Herold 2011 Global Upstream M&A Review, please contact, email@example.com, or firstname.lastname@example.org.