By OGJ editors
HOUSTON, Jan. 5 -- Worldwide sales of upstream oil and gas properties reached a record $107 billion in 2010, a 160% increase above 2009 transactions, according to preliminary figures by IHS Inc., Englewood, Colo., for its 2011 review of mergers and acquisitions.
This increase was driven by spending by national oil companies; major divestiture programs by BP PLC, ConocoPhillips, Suncor Energy Inc., and Devon Energy Corp.; as well as major joint ventures focused on North American unconventional resource plays, IHS said.
Value of total upstream merger and acquisition transactions, including corporate mergers, rose by $16 billion to $160 billion, although there were no corporate mergers greater than $10 billion in 2010. Corporate transaction value retreated to about $53 billion in 2010 after spiking on the ExxonMobil Corp.–XTO Inc. and Suncor Energy–Petro-Canada mergers in 2009.
Three primary drivers led to the record asset deal value, said Christopher Sheehan, director of M&A research at IHS. These were: “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.” He said, “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. [NOCs] seized the opportunity to purchase hard assets in a strategic expansion of their global natural resource holdings.”
Sheehan said, “In addition, 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.”
According to IHS, upstream asset sales more than doubled to $59 billion in North America in 2010, although the region’s share of total global upstream transaction value slipped to 54% in 2010 from 68% in 2009 when the value was inflated by corporate mergers. North American activity in 2010 was dominated by shale resource investment, including more than 150% year-on-year increase on US asset deal spending. Regulatory uncertainty in the Gulf of Mexico following the deepwater Macondo blowout last summer “led to only sporadic transaction flow there,” IHS reported.
LatAm M&A soared
IHS reported the biggest increase in upstream transaction value was in Latin America where deal value soared to $29 billion. That milestone was “fueled by Chinese [NOCs] expanding their upstream footprint in the Americas, including gaining access to Brazil’s immense deepwater presalt resources,” IHS analysts said. “To put this phenomenal growth in perspective, Latin America accounted for 18% of the worldwide upstream transaction value in 2010, skyrocketing sixfold above the 2009 transaction value that represented just 3% of the global total.”
In Asia-Pacific, total transaction value more than tripled to $18 billion, while activity was flat or lower in Europe, Africa, the Middle East, and the former Soviet Union. “The volume of distressed assets on the market dampened deal pricing gains in 2010 compared with the previous year,” IHS said. “Weighted, average oil and gas proved-reserve deal pricing rose to $10.59/bbl of oil equivalent in 2010 from $9.72/boe in 2009. Deal pricing for proved, oil-weighted transactions increased to $9.78/boe in 2010 from $8.48/boe in 2009.”
In the US, deal pricing for proved, oil-weighted transactions increased sharply to $16.51/boe last year from $12.72/boe in 2009. “Despite persistently weak natural gas prices, gas-weighted, proved-reserve deal pricing in the US (the world’s most liquid upstream M&A market) actually rose slightly from $11.26/boe in 2009, to $11.79/boe in 2010,” IHS said.
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,” said IHS. The major trends surrounding unconventional resources last year were near doubling of asset deals focused on tight gas plays and more than tripling of transactions focused on Canadian oil sands.
“The Canadian oil sands assets,” Sheehan said, “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 acquisitions of global upstream properties to feed their rapidly growing economies. Total NOC and SWF transaction value reached $32 billion or 20% of the global total in 2010, up from 13% of worldwide transaction value in 2009. Total global purchases by Chinese NOCs increased from $14 billion in 2009 to $26 billion in 2010.
IHS will present a comprehensive analysis of 2010 transactions and forward-looking insight into 2011 and beyond in its IHS Herold 2011 Global Upstream M&A Review, to be released in early March.
IHS: Global upstream sales hit record $107 billion in 2010
By OGJ editors