U.S. reserve values decline as acquisition activity rises

For the fourth quarter, based on 41 transactions for which transaction values and reserve quantities were reported, the median reserves value fell to $4.72/boe from a revised value of $5.00/boe for the third quarter. The number of transactions was up also, with a total of 73 deals closing in the fourth quarter vs. 45 in the third, according to the Houston-based investment banking firm.

"The pace of deal activity is likely to strengthen, because many of the financially strong companies see this market as an opportune time to acquire additional oil and gas assets," said Cornerstone.

U.S. oil and gas merger and acquisition (M&A) deals that closed during 1998 were worth a total of about $20.1 billion, excluding the British Petroleum Co.plc-Amoco Corp. merger. This is a 22.6% increase from 1997's revised aggregate deal value.

The median reserves value for the 133 deals in 1998 for which transaction values and reserves quantities were disclosed was $4.94/boe, a 4.4% drop from 1997's median value.

Of the total 1998 deal value, $2.4 billion was associated with offshore transactions, says Cornerstone. The median value for these reserves was $5.90/boe, a 5.1% decrease from 1997.

The total number of U.S. M&A deals during 1998 was 253 vs. 231 in 1997. There were 36 offshore transactions vs. 35 last year.

Quarter stats

(Cornerstone excluded the BP-Amoco transaction so as not to skew the statistics.)

Of the 78 fourth quarter transactions, 58 reported dollar values. Of those 58, 2 were categorized as large transactions ($100 million), 6 were $50-100 million, 10 were $25-50 million, and 40 were valued at less than $25 million. (Cornerstone included the BP-Amoco merger in the fourth-quarter transaction total but not in the aggregate deal value, in order not to skew the statistics.)

Large deals accounted for only 26% of the total transaction value, compared with the typical range of 60-80%.

The fourth quarter 1998 total transaction value consisted of 93% cash, 5% stock, and 2% debt, says Cornerstone.

"Although the currency of choice for buyers over the last couple of quarters had been trending towards paper (stock and debt), the fact that the market consisted largely of smaller-sized deals

Gas vs. oil

In terms of actual reserves traded last quarter, however, gas accounted for 79.2% vs. 70.8% in the third quarter.

The median price paid in the gas-dominated transactions in fourth quarter 1998 was $0.830/ Mcfe, down 6.7% from the third-quarter revised price of $0.890/ Mcfe and 13.5% lower than fourth-quarter 1997's $0.959/ Mcfe. In the fourth quarter, only six deals were oil-dominant. These averaged $3.99/boe, a 2.8% increase from third quarter's revised value of $3.88/boe but a decline of more than 11% from fourth quarter 1997, when they averaged $4.38/boe.

Aside from the monster BP-Amoco merger (OGJ, Aug. 17, 1998, p. 34), major deals in the fourth quarter included: the acquisition by Coastal Corp. of substantial Midcontinent assets from Conoco Inc. (OGJ, Nov. 9, 1998, Newsletter), and the acquisition of Total Minatome Corp. by Energen Resources Corp. (OGJ, Sept. 21, 1998, p. 47).