IHS Herold: Global upstream M&A activity up in 2009

March 15, 2010
The value of global upstream mergers and acquisitions jumped 40% during 2009 to just under $150 billion, IHS Herold Inc. reported Mar. 8 in its annual Global Upstream M&A Review.

The value of global upstream mergers and acquisitions jumped 40% during 2009 to just under $150 billion, IHS Herold Inc. reported Mar. 8 in its annual Global Upstream M&A Review. Deals in the US and Canada accounted for two thirds of the 2009 M&A total.

IHS Herold analysts forecast continued strong M&A activity this year, noting "relatively robust crude prices and a continued thawing of the credit markets." They estimate more than $20 billion worth of assets worldwide are for sale.

US and Canadian unconventional gas resources are attractive to international oil companies (IOCs) seeking to replace declining production from mature, conventional basins, they said, adding that national oil companies (NOCs) also will play an important role.

"Internationally, we believe strategically driven Asian NOCs will continue their quest to secure global energy supply through the M&A market, with IOCs and independents battling for the same world-class assets," said Chris Sheehan, IHS Herold director of M&A research.

Spending on unconventional resources in the US and Canada topped $50 billion in 2009, including US shale plays and the Canadian oil sands. Regarding spending by NOCs, Sheehan noted that Chinese state-owned companies spent more than $15 billion on oil-based transactions outside the US and Canada.

"Africa fueled international M&A deal growth last year as the region represented nearly 10% of global deal value, and more than 25% of transaction value outside North America in 2009, both record highs," Sheehan added.

Large takeovers

IHS Herold noted that the 2009 M&A value was lead by the two largest corporate takeovers since 2006: ExxonMobil Corp.'s planned $41 billion acquisition of XTO Energy Corp. and Suncor Energy Inc.'s $21 billion acquisition of Petro-Canada.

Transactions involving US and Canadian assets represented 65% of the global total, up from 50% in 2008. Six of the 10 largest deals in 2009 were US and Canadian reserve acquisitions.

Corporate acquisitions accounted for 70% of worldwide deal value in 2009 and for the five largest transactions, although total corporate deal count held flat near a 5-year low. US and Canadian corporate transaction value in 2009 quadrupled over 2008.

Most of the acquired proved reserves were oil. Excluding the ExxonMobil-XTO transaction, oil-weighted proved reserves transactions were about 80% (60% if counting the ExxonMobil-XTO deal).

Major oil companies and European IOCs invested heavily in US shale gas through both asset and corporate acquisitions in 2009. Yet, the US deal count tumbled to a 10-year-low, primarily due to weak gas prices and tight equity, analysts said.

In Canada, deal activity was sluggish for the second year in a row. The Suncor-Petro-Canada merger comprised more than half of 2009 Canadian transaction value. Implied reserve values for oil-weighted transactions and the percentage of acquired crude reserves increased, while pricing for gas-weighted assets fell sharply.

The number of transactions in Europe dipped slightly from the record total in 2008, but was the second highest in 10 years. European utilities and diversified energy companies continued to be active buyers in the North Sea, targeting regional gas supply.

Colombia and Argentina accounted for more than half the Latin American transactions last year with substantial investment also focused in Peru.

Acquisition spending in the former Soviet Union accounted for almost 15% of worldwide deal value in 2009.

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