M&A market dips, maintains value

The number and total value of US oil & gas mergers and acquisitions dipped slightly in 2Q 2011 over the same period last year, according to a recent PricewaterhouseCoopers (PwC) study. But the average deal value for the largest transactions rose by 14%.

Shale gas acreage, deals for midstream assets and investment from foreign buyers helped buoy the oil & gas M&A market in the second quarter, PwC said. In all, some $39 billion changed hands in the quarter in 51 deals worth more than $50 million. The total was down from 2Q 2010, when 61 deals worth more than $50 million represented $41 billion in spending.

The quarterly report from PwC's energy M&A practice only covers transactions with value greater than $50 million.

Although the number and overall value of M&A activities were down in 2011, the average value of individual deals rose from $672 million in 2Q 2010 to $765 million this year.

‘There continues to be steady M&A activity in the oil and gas sector with strong competition for prized assets, which has maintained the deal momentum throughout the first half of the year,' said Rick Roberge, principal in PwC's energy M&A practice.

‘With oil prices hovering at $100, private equity funds continue to make a very strong push in the oil and gas sector,' Roberge added. ‘The private equity deal makers, who used to largely play in the midstream space, are now heavily involved in exploration and production, shale plays, and oil field services and equipment sector.

'We believe that another factor to keep a close eye on throughout the year, which may add to the already robust M&A activity we're seeing, is the trend of integrated oil companies looking at the various options to unlock shareholder value through separating their E&P businesses,' Roberge concluded.

PS: it pays to specialize

Meanwhile, recent analysis by consultant AT Kearney suggests oil & gas sector companies will increasingly choose areas of specialism in order to cater for the fast changing nature of the industry.

The company's report, Challenging the integrated oil & gas model, which assesses the business models that can best deliver returns on shareholder investment and stakeholder expectations, finds that specialist companies create more shareholder value than integrated companies. The report also predicts seismic change in the existing business models of many oil & gas companies and asks where the $1 trillion in annual investment that will be needed to satisfy the world's energy needs for the next 20 years should be invested.

According to AT Kearney energy practice partner Jim Pearce a ‘unique mix of factors including changing supply and demand models, pricing variations and pressures on the oil multinationals, means the traditional integrated way of doing business may not be the best solution for the future of the industry. These changes are prompting companies to rethink their business models. These changes will fundamentally affect the way companies will invest the billions of dollars needed to ensure oil and gas companies thrive in future.'

Given the changes taking place both within and outside the industry, oil & gas companies may have to reassess their priorities so that an increased role of specialisation in the value chain, a greater understanding of the new face of NOC-IOC relationships and a response to the increasing need in risk management become their top priorities. OE

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