SOURCE: PLS Inc

PLS Inc

January 07, 2014 09:00 ET

Global Oil and Gas Upstream Deal Counts Down 16% in 2013, Says PLS Inc.

Aggregate Deal Value Only Down 20% After Backing Out Three Mega-Deals of 2012

HOUSTON, TX--(Marketwired - Jan 7, 2014) - PLS Inc.

  • $138 billion global deal value is lowest since 2008; excluding mega-deals, slowest market since 2009.

  • However, healthy deal count of 1,028 reported transactions, on average for last seven years.

  • Biggest deal of the year is Devon's $6.0 billion Eagle Ford acquisition.

  • Most impactful deal of the year: Linn Energy's $4.9 billion buy of Berry Petroleum.

  • Corporate M&A activity hits record low 19% of the market.

  • U.S. deal total 38% market share, comparative to last 7 year range of 33-49%.

  • Africa & South America are other active regional areas; Canada transactions way off.

  • International asset market (Outside U.S.; non corporate deals) set a record of $66.3 billion.

  • China buying remains strong, 16% market share in 2013.

  • Deals in Play remain robust at $127 billion globally, $38 billion on the market in the United States.

  • In the U.S., the land grab is substantially over and operators are focused on drilling and bolt-ons.

  • Expect scale and efficiencies should drive consolidation in North America resource plays.

PLS Inc., a leading Houston-based research, transaction and advisory firm to the global E&P and financial industries, in conjunction with its international partner Derrick Petroleum Services, reports that global upstream oil and gas M&A activity in 2013 totaled $137.7 billion in 1,028 transactions (including 643 with deal value disclosed). 

While the headline 2013 deal value is down 49% from the record $270.8 billion in 2012 and the lowest since $117.4 billion in 2008, PLS notes that these numbers do not properly characterize the status of the overall markets. The spike in 2012 deal activity included three mega-deals (defined as >$10 billion) which alone accounted for $97.1 billion or 36% of the 2012 total. The three 2012 mega-deals were Rosneft's $61.6 billion buy of TNK-BP in Russia, CNOOC's $17.9 billion buy of Nexen and Freeport-McMoRan Copper & Gold's $17.6 billion buy of Plains E&P. Excluding these 2012 mega-deals, 2013 deal value is down only 21%. Furthermore, total deal count of 1,028 is actually down just 17% from 2012 and up versus the average of 1,004 for the last seven years. 

For perspective, since 2007 the annual average deal value is $173 billion versus 2013's $137 billion. Backing out the six mega-deals since 2007 (half of which were during 2012), the $137 billion in 2013 is down just 8% from the annual average deal value of $148 billion.

 
 
Table 1
Global Oil and Gas Upstream
Deal Count and Value
 
Year Total Deals Deals w/Price Value ($B) Adj. Value ($B) (1)
2013 1,028 643 $138 $138
2012 1,235 796 $271 $174
2011 1,358 864 $173 $157
2010 1,017 688 $211 $211
2009 751 480 $151 $91
2008 831 511 $117 $117
2007 809 478 $152 $152
Avg. 1,004 637 $173 $148

(1) Note: Excluding Mega-Deals > $10 billion, 3 deals in 2012, 1 in 2011 and 2 in 2009.

Note: Deals > $1.0 billion are 39 in 2013, 50 in 2012, 38 in 2011, 58 in 2010, 21 in 2009, 25 in 2008, and 33 in 2007.

According to Brian Lidsky, Managing Director of PLS Inc., "Traditional analysis of the energy M&A markets is sometimes flawed by entrenched protocols which do not properly take into account the impact of several factors including: 1) many oil and gas transactions do not reveal prices, 2) mega-deals like the $62 billion Rosneft/TNK-BP deal in 2012, the $41 billion ExxonMobil/XTO deal in 2009 and the $18 billion CNOOC/Nexen deal in 2012 can significantly skew annual results, and 3) some firms include other sectors in their energy deal totals like midstream, downstream and oilfield services."

"Total deal counts and average deal size for deals with prices disclosed are better gauges than total deal value to evaluate the health and trends of the oil and gas upstream M&A markets. For example, in 2013 the headline may be that the total deal value of $138 billion is down 50% from a record 2012, but digging deeper paints a more accurate picture. 2013 actually is a year in which upstream oil and gas M&A activity by and large reverted back to the mean of the last seven years of activity, after adjusting for the mega-deals. Furthermore, overall the market remains healthy with ample deal flow and a host of motivated buyers. There are pockets of weakness like large North American acreage positions which may not have held to original expectations and proved undeveloped natural gas reserves. To be accurate, M&A markets did experience a hangover in the first half of 2013 but recovered in the second half."

As Table 2 indicates, in 2013 the number of Global deals with values disclosed, with the notable exception of the North Sea, generally slowed across the board. In Europe, including the North Sea the deal count more than quadrupled from 7 to 33 transactions. North America took 46% (U.S. 38%; Canada 8%) of global value and 75% of deals, down from 53% and 74%, respectively, in 2012. The Former Soviet Union is the second largest region of activity and deal value dropped 59% in 2013 (because of the $62 billion, 2012 Rosneft/TNK-BP) while deal count was up 17%. However, excluding the Rosneft deal, 2013 value ($31.6 billion) in the FSU doubled. Africa ($20.3 billion) took third place in 2013 with a 15% global share of deal value and 4% of deal count. Year-over-year, Africa deal value jumped 50% while deal count slipped 28%. Africa continues to be a growing market player and saw eight deals pierce the $1 billion level in 2013. African activity is being driven by emergence of large East African gas discoveries destined for LNG (example: Mozambique) plus conventional oil (examples: Egypt, Nigeria).

 
 
Table 2
Global Oil and Gas Upstream Deals
Regional Breakdown
 
  2012 2012 2013 2013
Continent Deal Value Deal Count Deal Value Deal Count
Africa $13,554 32 $20,328 23
Asia $3,929 21 $5,293 19
Australia $13,835 53 $2,500 19
Europe $10,739 7 $5,733 33
Former Soviet Union $77,356 29 $31,653 34
Middle East $3,083 12 $64 2
North America $143,375 589 $62,949 484
South America $4,889 35 $9,203 8
Total $270,759 796 $137,724 643

Note: Deal Value in Usd$MM. Deal Count only includes deals with value disclosed.

Note: In 2012, FSU includes $62 billion Rosneft/TNK-BP; North America includes $17.9 billion CNOON/Nexen and $17.6 billion Freeport McMoRan Copper & Gold/Plains E&P transactions.

According to Mangesh Hirve, Director, Derrick Petroleum Services, "Looking at the international markets outside of the United States, asset transactions (not counting corporate acquisitions) remained strong in 2013 amounting to a record $66.3 billion, up from the prior record of $64.5 billion set in 2012. However, the international appetite for corporate deals dived to a record low of $19.5 billion coming off the record high of $114.0 billion in 2012 or $52 billion not counting Rosneft/TNK-BP."

Chinese buying has been diversified across the globe with CNPC getting the top two 2013 deals, those being a $5.4 billion Kazakhstan transaction and a $4.2 billion Mozambique deal. Globally, including the United States, China has bought $138 billion of assets or 11% of the market since 2007. In 2013, China bought $23 billion or 16% of the market compared to $32 billion or 12% in 2012, which included the $18 billion buy of Nexen by CNOOC. According to Lidsky, "China buying is continuing strong and shows no sign of abating. The latest deal just occurred in mid-November with CNPC paying $2.6 billion to Petrobras for assets in Peru."

Top 10 deals of 2013--

In 2013, the Top 10 deals totaled $39.5 billion or 29% of the market. Of this Top 10, four are in Russia and three are in the United States. The strong trend of buying by national oil companies (NOCs) continues with these companies being responsible for seven of the Top 10 deals. 

Large deals of 2013---

Regarding large deals in 2013, 39 deals exceeded the $1.0 billion threshold, compared to 50 in 2012. The high-water mark remains at 58 $1.0 billion-plus deals struck in 2010.

 
 
Table 3
Top 10 Global Oil and Gas Upstream Deals in 2013
 
Date Buyers Sellers Deal Value (US$MM) Country
11/20/2013 Devon Energy GeoSouthern $6,000 United States
9/9/2013 CNPC (China) ConocoPhillips $5,400 Kazakhstan
2/21/2013 Linn Energy Berry Petroleum $4,900 United States
3/14/2013 CNPC (China) ENI $4,210 Mozambique
7/18/2013 Fieldwood Energy Apache $3,750 United States
6/21/2013 Bradnor; Cromeld Sistema $3,655 Russia
8/29/2013 Sinopec Apache $3,100 Egypt
11/20/2013 Novatek; Gazprom ENI $2,940 Russia
7/2/2013 Rosneft Itera $2,900 Russia
8/19/2013 OMV Statoil $2,650 Norway

U.S. deals of 2013---

U.S. deal activity in 2013 declined 17% to 519 transactions compared to 624 in 2012. Deal value slumped 42% in 2013 to $51.8 billion -- the lowest level since 2008.

Table four highlights U.S. upstream mergers and acquisitions for 2013

 
Table 4
United States Oil and Gas Upstream Deals
Deal Count and Value
 
Year Total Deals Deals w/Price Value ($B) Adj. Value (1)
2013 519 322 $51.80 $51.80
2012 624 368 $89.60 $72.00
2011 729 423 $83.90 $68.80
2010 524 321 $75.50 $75.50
2009 311 178 $61.80 $20.80
2008 383 219 $47.90 $47.90
2007 335 198 $49.70 $49.70
Avg. 489 290 $65.70 $55.20
         
(1) Note : Excluding Deals > $10 billion.

According to Lidsky, "Impacting U.S. activity is the investments required behind the onshore resource plays. The land grab activity began to surge in earnest in 2008 [see Table 4] and accelerated with the landmark $41 billion buy of XTO by ExxonMobil back in December 2009. What we are witnessing now is the transformation of the industry from land acquisitions to de-risking and development. As this trend proceeds, drilling capital intensity will increase and players will rebalance portfolios to keep their finances in order. These adjustments will continue to provide ample opportunity for deal making."

In the U.S. during 2013, the Eagle Ford shale ($8.8 billion) took top honors for deal value followed by the unconventional Permian ($7.5 billion), Rockies conventional ($5.5 billion), Gulf of Mexico shelf ($4.2 billion) and Bakken ($2.9 billion). This compares to a 2012 ranking led by the unconventional Permian ($7.7 billion) followed by the deepwater Gulf ($7.2 billion), the Bakken ($7.0 billion), the Gulf of Mexico shelf ($6.3 billion) and the conventional Permian ($5.6 billion).

Throughout 2013, the strong buyer theme on MLPs and private equity remained thoroughly entrenched. On the MLP front, 2013 marked two remarkable transactions. The first is Linn Energy's $4.9 billion acquisition of Berry Petroleum which, after ten months of reviews, closed on December 16. This transaction is a milestone for the M&A markets as it marks the first-ever acquisition of a public C-Corp by an upstream LLC and opens the door for Linn, self-described as an "acquisition machine," and other MLPs to structure transactions for corporate acquisitions, as opposed to asset-based deals. The second notable MLP transaction bucks the MLP buying trend and saw Pioneer Natural Resources buy back the 48% stake of its related MLP Pioneer Southwest Energy Partners which it did not own for $606 million to boost is scale and operating efficiencies in the Permian Basin.

Meanwhile, private equity buying and selling remains strong and their coffers are well-stocked. Two deals in 2013 exemplify this trend. The first was GeoSouthern's $6.0 billion Eagle Ford sale of 53,000 boepd and 82,000 net acres to Devon which rewarded private equity firm Blackstone with $1.54 billion. Not only is this deal noteworthy from the private equity perspective, but it also illustrates that larger public companies remain on the hunt for solid entry points to top tier resource plays that have critical mass and running room for development. The second private equity example of 2013 is Riverstone making its largest commitment to date by backing Fieldwood Energy's $3.75 billion buy of Apache's Gulf of Mexico shelf assets. Like Devon, the Apache sale is also noteworthy as it marks the last exit of a major or large independent from the Gulf of Mexico shelf and allows Apache to accelerate U.S. onshore resource drilling. 

Looking Forward

PLS and Derrick provide the market's only ongoing and commercially available comprehensive list of every identifiable oil and gas buying opportunity in the world, known as Deals in Play ("DIP"). Quarterly, using our proprietary valuation analytics, PLS reports a total dollar amount of deals available in the upstream oil and gas marketplace. When compared to actual transaction volumes, this leading indicator allows for market participants to gauge relative buyer and seller strength in both the macro and regional markets.

On January 1 the rapid growth of the global inventory of Deals in Play has stabilized and now totals $127 billion, down slightly from $135 billion on September 1, 2013 yet substantially above the $85 billion on January 1, 2013. In the United States, the DIP tally stands at $38 billion, up from $33 billion a quarter ago and $27 billion a year ago.

 
Table 5
Top 10 Deals in Play
 
Date    Sellers   Country   Comment 
6/3/2013   Rosneft   Russia   Reportedly selling $15 billion incl. stake in western Siberia 
12/16/2013   Shell   Australia   Selling 23% stake in Woodside Petroleum
10/18/2013   Occidental   Multiple Countries   Looking for minority partner in Middle East portfolio 
3/5/2013   RWE   Multiple Countries   Company  for sale, Bids were due late Dec. 2013 
9/4/2013   KNOC   Canada   Reported to be selling all or part of Harvest Operations 
2/5/2013   Anadarko   Brazil; China   Reportedly looking to sell Brazil portfolio and China assets  
11/19/2013   Devon Energy   Canada   Selling 471 MMcfepd, >4 million acres conventional
11/19/2013   Devon Energy   United States   Selling non-core positions producing 318 MMcfepd
10/18/2013   Occidental   United States   Reviewing Williston, Piceance Basin and Hugoton assets  
11/21/2013   ConocoPhillips   Canada   Selling down 16 Bbbls of oilsands resources

PLS expects the deal markets to: 1) continue to be driven by the sale of non-core assets and JVs to supply capital for drilling North America resource plays, 2) an appetite around the world to secure LNG feedstock, 3) large private equity wallets which need to be put to work, 4) China continuing buying around the globe and 5) North American MLPs' need to feed their dividend-driven business models. 

PLS will release its annual oil and gas M&A study detailing additional data including U.S. regional and resource play activity plus valuation trends in two weeks. Prior studies are available at www.plsx.com/ma

For sales or more information, regarding the Global M&A Database, please call PLS Inc. at (713) 650-1212, email ali@plsx.com or visit www.plsx.com/ma.

About The Global M&A Database

PLS Inc. and Derrick Petroleum Services provide global clients leading information and research services. Since 2007, the Global M&A Database has tallied more than 7,000 upstream oil and gas transactions including over 4,400 with values disclosed, totaling over $1.2 trillion. This unique database now covers the upstream, midstream, downstream and OFS sectors - in addition to the Deals in Play - and is maintained 24/7 by a team of analysts and are accessible via the web at www.plsx.com/ma.

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