Ernst & Young: Oil, gas deal values climbed in 2012

The oil and gas mergers and acquisitions market is expected to remain resilient during 2013 even though many geopolitical and economic uncertainties from 2012 continue, said an M&A report that Ernst & Young released from its London office Jan. 24.

Andy Brogan, E&Y global leader oil and gas transaction advisory services, noted “a relatively benign oil price environment” during 2012, yet industry negotiated transaction worth a higher total value than in 2011. The higher total stemmed from more capital starting to become available.

Access to capital is expected to remain key for 2013 oil and gas M&A throughout the industry.

“While capital availability is generally improving (especially debt), funding will remain a challenge for smaller companies for both debt and equity, and we continue to expect cash constraints coupled with cost escalation to be a driver for both asset and corporate opportunities,” Brogan said. “Those at the larger end of the scale with stronger balance sheets are likely to be the beneficiaries of this.”

E&Y’s 2012 oil and gas transactions review showed $402 billion in oil and gas transactions last year, up 19% compared with 2011. Ninety-two transactions exceeded $1 billion in value during 2012 compared with 71 in 2011.

But the number of oil and gas transactions declined slightly to 1, 616 during 2012 compared with 1,664 deals during 2011.

Upstream accounted for $284 billion of 2012 transactions. North America accounted for 52% of that with a rapidly growing Canadian deal market while the US market contracted.

Downstream transactions values were flat at $42 billion, with the number of deals also fairly stagnant at 162 transactions, 6% lower than 2011.

The number of 2012 midstream transactions decreased by 19% to 90 compared with 2011, and their reported deal value decreased to $50.3 billion during 2012 compared with $87.3 billion during 2011.

The US and Canada accounted for 78% of 2012 midstream transactions, but this was a decline from the 83% dominance of the region in 2011. Midstream activity levels likely will continue to increase outside of the US and Canada, the report said.

Canada M&A likely

Canada’s oil and gas industry continues to be very active, EY said. The volume of transaction activity in 2012 was up 18% compared with 2011 (228 vs. 193) but was dramatically higher in terms of deal values, led by the upstream sector.

Deal value during 2012 was $51.9 billion compared with $15.2 billion during 2011. The 2012 total stemmed from CNOOC Ltd.’s S$15.1 billion acquisition of Nexen (OGJ Online, July 20, 2012).

In addition, Canadian government officials also approved a $5.5 billion offer from Petronas Carigali Canada Ltd. for Progress Energy Resources Corp. The Petronas offer initially was rejected in October (OGJ Online, Oct. 29, 2012).

Foreign investors likely will place a renewed emphasis during 2012 on entering strategic alliances and joint ventures with Canadian domestic partners retaining some form of control.

State-owned companies from Asia continued to invest in overseas acquisitions last year, largely driven by Chinese companies acquiring interest in US and Canadian unconventional plays.

Europe has strong M&A activity in 2012. Overall transaction volumes of 179 fell short of 2011’s 189 deals, but their combined value of $29.3 billion exceeded the 2011 level of $24.1 billion.

“Upstream, where European activity centers on the North Sea, delivered the greatest share of deal volume,” the report said.

Contact Paula Dittrick at paulad@ogjonline.com.

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