Oil and natural gas shale plays are likely to drive 2012 merger and acquisition activity with the midstream and field service sectors likely to experience a growing share of oil and gas M&A, said two separate reports from consultants analyzing last year's activity.
Deloitte Center for Energy Solutions issued a yearend report Feb. 8, while PwC US issued a Feb. 8 news release outlining its fourth-quarter M&A analysis.
Shale-related transactions in the US and Canada will dominate 2012 transactions, Deloitte said in its report. While upstream transactions will represent the bulk of M&A activity, investors realize lack of midstream infrastructure is constraining production in some areas.
"We're seeing a new wave of midstream activity, which makes sense given the new challenges of getting resources to market in the US," Trevear Thomas of Deloitte Consulting LLP said. "Because of the positions of the shale fields, we do not yet have a midstream infrastructure that fully supports the location of exploration and production activity."
After a slow start during the first half of 2011, M&A activity picked up during the second half when Deloitte tracked 240 oil and gas transactions having a total deal value of $155 billion.
PwC US reported 191 deals with values greater than $50 million last year accounted for $186.5 billion, compared with 2010 total deal value of $138.5 billion. Average deal size increased in 2011 to $977 million, up 38% from 2010.
Shale deals evolving
"The industry continued to make a paradigm shift to shale in 2011 with virtually every major oil and gas company taking a position in unconventional plays," said Steve Haffner, a Pittsburgh-based partner with PwC's energy practice. "Activity in the Marcellus shale remained strong for patient buyers waiting out the supply-demand dynamics of natural gas. Towards the end of last year, we saw many investors looking at the Utica shale as the next area of interest to take advantage of the more liquids-rich resource and its proximity to major metropolitan areas."
Fourth-quarter 2011 deals involved 23 upstream transactions accounting for $24 billion, PwC said. Twelve midstream deals had a total value of $48 billion. Oil field equipment deals followed with eight transactions totaling $4.5 billion, while five downstream deals contributed $4.1 billion.
Fourth-quarter 2011 M&A involving shale accounted for 17 deals with a total deal value of $57 billion, compared with 32 shale-related deals representing $29.3 billion during the final 3 months of 2010, PwC said.
Total value of 2011 shale-related transactions reached $107 billion, of which upstream accounted for 55 transactions having a total value of $59.6 billion, PwC said.
For full-year 2011, PwC reported 13 deals in the Marcellus shale worth $9.9 billion compared with 22 deals that totaled $20.3 billion during 2010. The Utica shale had seven transactions that represented $6.7 billion in 2011, a jump from one 2010 deal with a value of $179 million.
"M&A activity in the US oil and gas sector was extremely active in 2011 as shale plays continued to attract the large multinational energy companies, foreign buyers, and private equity firms," said Rick Roberge, principal in PwC's energy M&A practice.
Deal flow is expected to remain active in 2012 as producers shift their focus from gas to oil and gas liquids to take advantage of oil prices holdings steady at $100/bbl, Roberge said.
Deloitte said private equity firms and state-owned international oil companies made large investments in unconventional assets during the second half of 2011, a trend continuing in 2012 (OGJ, Feb. 6, 2012, p. 14).
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