Midstream drives M&A

July 30, 2012
Upstream shale transactions have driven US oil and gas merger and acquisition activity for the last 2 years, but PwC US reports investors shifted their attention toward the midstream this year.

Upstream shale transactions have driven US oil and gas merger and acquisition activity for the last 2 years, but PwC US reports investors shifted their attention toward the midstream this year. Three of the five largest deals during this year's second quarter were midstream transactions, said PwC's Oil & Gas M&A analysis.

In April, Energy Transfer Partners LP agreed to buy Sunoco Inc. for $9 billion. Sunoco has been withdrawing from the refining business and operates the general partner interest of Sunoco Logistics Partners LP, which owns products pipelines and terminals.

Global Infrastructure Partners agreed to buy two midstream subsidiaries from Chesapeake Energy Corp. for $2.5 billion, and Penn Virginia Resources Partners LP agreed to pay $1 billion for Chief Gathering LLC, owned by Chief E&D Holdings LP.

The PwC quarterly report reviews announced US transactions worth more than $50 million. PwC bases its analysis upon transaction information from IHS Herold.

Midstream deal value accounted for $15.8 billion, or 55% of total second-quarter deal value, nearly a 200% increase compared with the midstream deal values during the second quarter last year.

For the 3-month period ended June 30, total value for transactions greater than $50 million reached $28.5 billion compared with $23.1 billion during the same period last year. The number of transactions declined slightly to 50 oil and gas deals from the 55 deals during second-quarter 2011.

Average deal value up

Average deal size increased during the second quarter, jumping to $569 million from $421 million for the same period last year.

"The second quarter experienced a softening of oil prices and, combined with the continued lows of natural gas prices and the global economic uncertainty, many oil and gas companies started to pull back from new investments in the upstream sector," said Rick Roberge, principal in PwC's energy M&A practice.

Executives invested in the midstream, focusing on infrastructure to transport, process, and store oil and gas extracted from shale plays. Roberge expects that trend will continue going into 2013.

PwC reported 14 midstream transactions valued at over $50 million in the second quarter. Upstream deals accounted for 29 transactions worth $9.3 billion total.

Commodity prices discouraged gas-focused transactions. PwC reported that upstream deals were skewed toward oil-focused targets: 12 oil deals vs. four gas deals.

In addition, four downstream deals contributed $2.2 billion in value, while services added three deals worth $1.2 billion.

Corporate deals

PwC tallied 13 corporate transactions having values greater than $50 million during the second quarter. Those corporate transactions had a total value of $17 billion, or 60% of total second-quarter M&A value.

Meanwhile, 37 asset deals contributed $11.4 billion during the same time period. Both the number and total deal value of asset transactions declined from 40 deals representing $12.4 billion in second-quarter 2011.

PwC reported 16 shale-related deals having value greater than $50 million in second-quarter 2012, totaling $7.5 billion. Two of those transactions, totaling $1.6 billion, involved the Marcellus shale while one Utica shale deal was worth $194 million.

"Deal activity in both the Marcellus shale and Utica shale continued to tail off as a result of the persistent low price of natural gas," said Steve Haffner, a Pittsburgh-based partner with PwC's energy practice.

"Over the past few quarters, shale assets were supported by strong pricing of natural gas liquids, but in the second quarter the market saw a drop in NGL pricing, impacting deal activity even further. Now the focus is on the midstream sector," Haffner said.

Private equity investors are playing a bigger role, positioning themselves in what they perceive to be a growing energy industry.

"They also have the ability to exercise the patience necessary to invest in the natural gas business at the bottom of the cycle—a luxury public companies do not have," Roberge said. "They've also been active on the sell-side looking to monetize earlier investments, especially in the midstream and oil field services space."

More Oil & Gas Journal Current Issue Articles
More Oil & Gas Journal Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com

About the Author

Paula Dittrick | Senior Staff Writer

Paula Dittrick has covered oil and gas from Houston for more than 20 years. Starting in May 2007, she developed a health, safety, and environment beat for Oil & Gas Journal. Dittrick is familiar with the industry’s financial aspects. She also monitors issues associated with carbon sequestration and renewable energy.

Dittrick joined OGJ in February 2001. Previously, she worked for Dow Jones and United Press International. She began writing about oil and gas as UPI’s West Texas bureau chief during the 1980s. She earned a Bachelor’s of Science degree in journalism from the University of Nebraska in 1974.