Deloitte: Unconventional oil, gas investors watching US tax, fiscal policies

The oil and gas industry so far has avoided any drastic changes in US regulation or taxation, but the risk of change still exists, prompting unconventional asset buyers and sellers to monitor the direction of federal tax and fiscal policy, said the Deloitte yearend 2012 report on mergers and acquisitions.

“A disproportionate or extreme change in regulatory oversight or taxation could put at risk the energy renaissance that North America is experiencing,” said Roger Ihne, principal, Deloitte Consulting LLP.

“The shale gas revolution initially benefitted the oil and gas industry, and is now largely responsible for potentially hundreds of billions of dollars in investment slated over the next decade for midstream infrastructure, added petrochemical capacity, LNG export facilities, and other manufacturing-related capital outlays.”

Jason Spann, Deloitte Tax LLP partner, said political uncertainty might have contributed to slowed transaction activity last year.

“Some buyers and sells did push to get deals done, driven by the changes to the tax law,” Spann said. “A few people were incentivized to get deals completed in 2012 at more favorable tax rates.

Jim Dillavou, Deloitte & Touche LLP transaction partner, noted lingering uncertainty exists because US lawmakers face significant work on fiscal policy.

“For an investor, the uncertainty has an impact on transactions and how much they are willing to pay,” Dillavou said. “The uncertainty makes it more difficult for buyers and sellers to reach an agreement on pricing.”

Unconventional play interest

Interest in US and Canadian assets supported the upstream transaction market last year, Deloitte said. The total value for upstream M&A rose 50% to $253.4 billion last year even as the number of 2012 transactions declined to 461 compared with 518 in 2011.

The upsurge in 2012 activity came late in the year, driven by Rosneft’s acquisition of TNK-BP (OGJ Online, Oct. 29, 2012).

National oil companies showed continuing interest in US and Canadian assets. CNOOC Ltd. is working to close its $15.1 billion acquisition of Nexen Inc.

All requisite approvals have been received. That includes approvals from Canada, UK, US, European Union, and China (OGJ Online, Feb. 12, 2012).

“We continue to see strong interest from foreign buyers, including state-owned enterprises,” Dillavou said. “Those companies are getting involved in North America’s oil and gas markets in order to better understand shale and tight oil resources.”

Many investments by NOCs in North America have been through noncontrolling interests in joint ventures. Deloitte expects to see continuing interest from international companies in their quest for North American and South American properties.

“Continued low US natural gas prices may only fuel buying interest as those with the deepest pockets recognize a long-term bargain when they see it,” Deloitte’s report concluded.

Contact Paula Dittrick at paulad@ogjonline.com.

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