Worldwide oil, gas transactions, total value dips

March 24, 2008
The total transaction value for worldwide upstream corporate and asset deals slipped to $154 billion in 2007 compared with $166 billion in 2006, consultants said in an annual report.

The total transaction value for worldwide upstream corporate and asset deals slipped to $154 billion in 2007 compared with $166 billion in 2006, consultants said in an annual report.

John S. Herold Inc. and Harrison Lovegrove & Co. Ltd. on Mar. 12 released highlights of their joint 2008 Global Upstream Mergers and Acquisitions Review, an analysis of more than 330 major upstream transactions announced during 2007.

The pricing for transactions declined during 2007 after having hit two consecutive records in 2005-06. John S. Herold is an IHS company, and Harrison Lovegrove belongs to Standard Chartered Bank.

“The industry has been facing rough seas” and those conditions are likely to be repeated in 2008, said Christine Juneau, John S. Herold chief operating officer, and Martin Lovegrove, Harrison Lovegrove vice-chairman, oil and gas, Standard Chartered Bank.

“Access to opportunities has continued to become more restricted and securing approval for project and deal go-aheads has lengthened,” they said in a joint statement. “Ironically, the industry had better margins at $30[/bbl] oil than at the yearend 2007 price of $96/bbl.”

Industry profit margins, as a percentage of revenue, have declined since 2005 based upon West Texas Intermediate future prices, according to statistics from the previously released John S. Herold and Harrison Lovegrove 2007 Global Upstream Performance Review.

The industry margin was 17% in 2005 compared with an estimated 2008 margin of 10%, the upstream performance review said.

Proved reserves values down

Worldwide weighted average pricing for proved reserves fell to $9.99/boe, down 22% from 2006. The average 2007 proved reserves value in the US and Canada was $16.57/boe, down 7%. Elsewhere, proved reserves prices were $5.05/boe, down 44%.

Reserves values in the former Soviet Union dampened global transaction values, the review said. Excluding FSU deals, worldwide weighted average and median proved reserves pricing held roughly flat with 2006 pricing.

For worldwide transactions involving proved plus probable reserves, the weighted average pricing declined 10% compared with 2006. But excluding FSU transactions, the global average for proved plus probable reserves pricing increased more than 20%.

The number of worldwide asset transactions surged 30% to 240 deals in 2007 compared with 2006. About 75% of the transactions involved properties in the US and Canada. Worldwide, asset transactions reached a total $89 billion in 2007.

Meanwhile, the 2007 worldwide total for transactions involving corporations dropped to $65 billion. It was the first year since 2004 that industry reported no individual corporate transactions greater than $10 billion.

A surge of transactions worth $5-$10 billion drove corporate transactions. The total for those transactions of $5-10 billion jumped to nearly $34 billion during 2007 from a total of $5 billion in 2006, the review showed.

Transactions involving state-owned or state-controlled oil and gas companies (NOCs) slipped from a record set in 2006 when NOCs accounted for one third of global upstream M&A spending (OGJ, Mar. 26, 2006, p. 30).

During 2007, NOCs accounted for $43 billion, or 29%, of total worldwide deal value during 2007. Total transaction value for NOCs outside of their home countries was $13 billion in 2007, the same level as 2006.