NORWALK, Conn. – 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, which was just
released by information and analytics provider IHS (NYSE: IHS). This
figure represents 48 percent of total 2011 worldwide upstream merger and
acquisition (M&A) spending
“Cross-border buyers, led by Asian-based investors, continued to stream
into North American unconventional resource plays through asset
partnerships and select corporate deals, with a bullish view on
potential LNG exports to the Asia-Pacific region in the coming decades,”
said Christopher Sheehan, director of energy M&A research at IHS.
“In 2011, high crude oil and international gas prices were juxtaposed
against persistently depressed North American
natural gas prices, leading to a 15-year high in deal counts outside North America.”
Total global upstream M&A transaction value, including corporate
mergers, fell 30 percent from an all-time high in 2010, which was driven
by massive asset divestiture programs. Corporate deal value in 2011
rose 19 percent to more than $58 billion, including BHP Billiton’s $15
billion takeover of unconventional resource-focused Petrohawk Energy,
the first upstream corporate merger greater than $10 billion since the
ExxonMobil-XTO deal in late 2009.
Sheehan noted the deal flow also increased in all regions outside the
U.S. and Canada as international investors pursued the prolific oil
discoveries that have occurred in recent years in regions such as
deepwater Brazil and
Africa.
In Australia, the coal seam gas-to-LNG market consolidated further, and
evolving markets such as Iraq’s Kurdistan region welcomed new entrants
through M&A.
Said Sheehan: “These areas are enticing international investors who
continue to face access barriers in established hydrocarbon basins such
as Venezuela, Russia and in the Middle East. World-class oil assets
continue to be highly sought after by both cash-rich national oil
companies and international integrated companies that continue to
struggle to materially grow reserves through the drill bit.”
In the international gas markets, growing Asian LNG demand will
increasingly fuel merger and acquisition activity from Australia to East
Africa.
In these regions, Sheehan believes small-cap international E&Ps
that own huge resources, but lack sufficient development capital, will
increasingly be takeover targets, particularly as the European debt
crisis has impacted their access to and the costs of capital.
U.S. transaction value in 2011 reached a 10-year high despite a lower
deal count than the prior year, as large joint-venture asset
acquisitions by overseas buyers fueled mergers and acquisition activity.
The U.S. accounted for approximately 50 percent of global upstream
M&A spending, well above its historical average. Producing oil
assets commanded a large deal price premium to gas properties, with a
growing focus on liquids potential in emerging basins.
“Established
shale
gas and emerging shale oil and tight oil plays in the U.S. are
attractive to foreign buyers since these plays offer massive discovered
resources with low exploration risk in a country with relatively high
political and fiscal stability, versus other global regions such as the
Middle East,
Africa
and Latin America. The longer-term potential of LNG exports to the Asia
Pacific from Canada and the U.S. is a strategic driver of many of the
cross-border
shale gas acquisitions in North America,” Sheehan added.
Meanwhile, decade low deal pricing for conventional gas assets, and
the upside from liquids-prone plays, attracted increased M&A
spending by private equity buyers seeking to benefit from a longer-term
North American
natural gas price revival.
Continued uncertainty in commodity price direction, wide-ranging
geographic oil and gas price spreads, fragile global economic
conditions, and limited or higher cost access to capital for many
upstream companies are challenging strategic decision making in the
industry and causing a consensus gap between potential buyers and
sellers.
Added Sheehan: “We believe that, in the present volatile environment,
global upstream M&A consolidation will accelerate in 2012 and
beyond as the well-financed ‘haves’ prey on the capital-constrained
‘have-nots.’ Many of the latter are key holders of massive undeveloped
gas and liquids resources that can provide material growth opportunities
or establish a strategic foothold in emerging basins. Consolidation,
including a rise in corporate takeovers, will be led by national oil
companies and sovereign-wealth funds, major integrated companies, global
industrial conglomerates, and private-equity investors, who all seek
opportunistic purchases of capital-intensive oil and gas assets and
financially strained companies that own prolific resource potential.”
IHS provides comprehensive analyses of 2011 transactions and
forward-looking insights into 2012 and beyond in the just-released IHS
Herold 2012 Global Upstream M&A Review. This year, the study
identifies thirty key regional plays across the globe that need to be on
the radar of oil and gas M&A market participants, including buyers,
sellers, advisors, and capital providers.
The regional profiles in each of the study sections are drawn from
the IHS Herold Company Research module Regional Play Assessments (RPAs),
which use IHS proprietary geological data to independently value the
resource potential and investment opportunities in established and
emerging oil and gas plays around the world. This research features
detailed analysis of company well results, acreage positions, drilling
activity, financial strength, play economics and company and asset
valuations.
