M&A rebound to extend into 2011

March 2, 2012

Merger and acquisition activity in the oil & gas industry rebounded in 2010, up 35% over the previous year, Ernst & Young said last month. Global transaction value hit $270 billion last year, up from about $200 billion in 2009, the company said. About 73% of the 947 deals announced in 2010 were upstream transactions.

Analysts expect the trend to continue in 2011.

‘As we predicted, 2010 was a healthier year for upstream and oilfield services transactions, whereas over-capacity in some regions drove a period of uncertainty and challenges in the downstream sector,’ said Ernst & Young global oil & gas transaction advisory services leader Andy Brogan. ‘There have, however, been diverse regional trends underlying this macro view. 2011 looks set to continue the themes of 2010 against the backdrop of gradually improving capital market conditions.’

Rebounding crude oil prices helped drive activity in 2010, the company set out in its annual M&A review. Natural gas prices lagged, but gas-related transactions nevertheless proliferated in many regions.

A separately published Ernst & Young report, Capital Confidence Barometer, found that half of oil & gas respondents were actively seeking inorganic growth through M&A, more than double the percentage of respondents who felt that way at the end of 2009.

‘It’s likely that this increasing optimism will underpin robust transaction activity levels in 2011, with a greater range of acquirers being active,’ Brogan said. ‘Smaller companies which have been nursing their balance sheets through recent years may feel greater confidence to return to acquisition activity, and financial investors are also re-establishing their interest in the sector. Demand from resource hungry NOC’s is always with us as well.’

Shale gas ‘frenzy’
Citing newly released Wood Mackenzie data, Deloitte vice chairman of oil & gas Gary Adams told last month’s Energy M&A Forum in Houston that a ‘frenzy’ in unconventional shale gas transactions helped fuel the M&A rebound in 2010. Asian national oil companies, hoping to shore up supplies for anticipated demand increases in coming years, were ‘net buyers’ in 2010 and especially active in North American shale play deals, he said.

The search for unconventional resources will expand in other markets, including Argentina, Europe and India, Adams said: ‘We’re expecting a lot of international opportunities for unconventionals.’

Several of the forum’s speakers noted that healthy crude prices had encouraged operators to increase stakes in oil-rich plays.

‘The majority of transactions in the last year were on the oil side,’ said BP director of structured products Frank Verducci. As capital markets recover from the global recession, many companies are ‘seeing value in finding crude’ that can be sold off to major oil companies in the future, he added.

Midstream saw an even more impressive return of M&A activity in 2010, jumping 400% above 2009 levels, according to the IHS Herold 2011 Global Midstream M&A Review. Total deal value in 2010 reached $49 billion, up from $12.6 billion in 2009 and equal to the all-time high set in 2006. Transactions involving gas gathering and processing assets led the deal count with 24 deals in 2010, followed by 10 deals involving liquids pipelines and eight involving gas pipelines, IHS said. OE



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