2013 global deal values down 49% while deal counts down 16%

Brian Lidsky, PLS Inc., Houston

At press time on January 2, 2014, PLS Inc. reports that 2013 global M&A upstream deal value fell 49% to $138 billion from a record $271 billion in 2012 and compares to an average $173 billion since 2007. The 2013 downturn is due to a natural slowdown coming off the record 2012 pace, a lack of mega-deals and the fact that US operators are turning their attention to drilling large positions in resource plays. This data is compiled from our Global M&A Database maintained in conjunction with our international partner Derrick Petroleum.

However, the decline in the top line number does not accurately reflect the status of the deal markets. In terms of number of deals, the 2013 market slipped just 16% to 1,029 deals, of which 644 have disclosed values, and is in fact slightly above the average annual count since 2007 of 1,004 deals.

In the United States, deal value slipped 42% in 2013 to $52 billion and is down 21% from the $66 billion average since 2007. As with the global numbers, the 2013 decline is not unexpected having come off a record $90 billion in 2012. For deal counts, 2013 is down 17% to 520 deals vs. 2012, but up from an annual average of 489.

In 2012, three mega deals accounted for $97 billion of the $271 billion total; Rosneft's $61 billion buy of TNK-BP, CNOOC's $18 billion buy of Nexen and Freeport-McMoRan Copper & Gold's $18 billion buy of Plains E&P. Without these mega deals, 2012 value tallies $174 billion and the 2013 YOY decline comparison drops from 49% to 21%. As the tables below show, the largest 2013 deal is Devon's $6.0 billion Eagle Ford purchase from privately held GeoSouthern Energy. Punctuating the lack of 2013 large deals, the smallest recent top deal was Gazprom $7.5 billion cash buy of a 50% interest in the Russia's Sakhalin II project in 2007.

Throughout 2013, our strong buyer theme on China, MLPs and private equity remained thoroughly entrenched. China buying remained robust at $23 billion in 2013, or 16% of the global market. Although this is down from $32 billion in 2012 (which included CNOOC's $18 billion buy of Nexen), it is up from $20 billion in 2011. On the MLP front, 2013 marked two remarkable transactions. The first is Linn Energy's $4.9 billion acquisition of Berry Petroleum which, after ten months of reviews, closed on December 16. This transaction is a milestone for the M&A markets as it marks the first-ever acquisition of a public C-Corp by an upstream LLC and opens the door for Linn, self-described as an "acquisition machine", and other MLPs to structure transactions for corporate acquisitions, as opposed to asset-based deals. The second notable MLP transaction bucks the MLP buying trend and saw Pioneer Natural Resources buy back the 48% stake of its related MLP Pioneer Southwest Energy Partners which it did not own. And, as often reported by PLS, private equity buying and selling remains strong and their coffers are well-stocked. The first example is GeoSouthern's $6.0 billion sale to Devon which rewarded Blackstone with $1.54 billion. The second is Riverstone making its largest commitment to date by backing Fieldwood Energy's $3.75 billion buy of Apache's Gulf of Mexico shelf assets.

Looking forward, we expect the deal markets to continue to be driven by the sale of non-core assets and JVs to supply capital for drilling North American resource plays, a drive to secure long-term North American natural gas for LNG feedstock, large wallets of private equity which need to be put to work, China continuing buying global supplies and MLPs now open to value-based and accretive acquisitions of C-Corps. Deal availability remains diverse and large. Our Deal in Play tally at January 1, 2014 stands at $127 billion, down slightly from $135 billion at September 1 and up from $85 billion at January 1, 2013. In the US, the tally stands at $38 billion versus $33 billion last quarter and $27 billion a year ago.