Ronyld Wise, PLS Inc., Houston

With year-end approaching, oil and gas deal activity in the US and Canada has increased significantly as companies focus on finalizing 2012 portfolio positions and gear up for 2013 plans. Some stability in WTI (around $87/bbl) and Henry Hub (around $3.90/MMbtu) during late October through mid November also helped buyers and sellers agree on price. In the US, the transaction market remains highly influenced by strong buyers including MLPs and private equity. Assets changing hands are largely concentrated positions with existing production offering development drilling upside. Oil is highly desirable though select contrarian players are taking advantage of this down cycle in gas prices to pick up meaningful positions.

This year Antero Resources has completed a series of transactions to transform itself into a pure-play Marcellus and Utica company. Back in June, MLP player Vanguard Natural Resources bought Antero's Woodford shale assets in Oklahoma for $445 million paying about $0.70 per Mcfe (91% gas). Recently, PE-backed and privately-held Ursa Resources paid $325 million for Antero's Piceance assets (65% gas) paying about $1.35 per Mcfe and marking Antero's final exit from western gas. Vanguard Natural Resources also continues its growth path having now completed 17 acquisitions for ~$2.4 billion since its IPO back in October 2007. Continuing the gas strategy, VNR recently paid $335 million to Bill Barrett Corp. for Piceance and Wind River basin gas assets in Colorado and Wyoming. These assets produce 56 MMcf/d and 1,500 b/d of oil and liquids. Deal metrics work out to be about $1.00 per Mcfe proved and $4,500 per daily Mcfe.

On the oil and MLP side, Legacy Reserves paid Concho Resources $520 million or $90,000 per daily boe (60% oil) for largely developed (85% PDP) reserves in the Permian. The assets are expected to generate $80 million in cash flow in 2013. Also, QR Energy paid $215 million for an interest in the world class East Texas field in Gregg and Rusk counties, Texas. The field was discovered in 1930 and has already produced 5.5 billion bbls of oil mainly from the Woodbine sand at 3,500 feet. Current production net to the acquired interest is 1,400 boe/d (90% oil). In the Bakken, deal activity remains brisk with Bakken-leader Continental Resources paying $520 million for Samson Resources' position and Halcon paying $1.45 billion (50% cash and 50% equity) for Petro-Hunt's position.

Moving north into Canada, ExxonMobil got another North America unconventional portfolio boost with its $3.1 billion corporate buy of Celtic Exploration. Exxon paid a 35% stock premium to get the deal and immediately gets a substantial 545,000 acre position in the liquids-rich Montney play. PLS estimates the deal implies a value of about $3,300 per acre. Tourmaline also makes a Montney buy via a $260 million corporate purchase (funded with Tourmaline equity) of privately-held Huron Exploration. On the conventional side, Lone Pine Resources (formerly Forest Oil's Canada arm) sold Alberta Deep Basin gas to Canadian Natural Resources for $82 million. PLS estimates this 93% gas deal to reflect metrics of $4,500 per daily Mcfe and $0.90 per proved Mcfe.

Internationally, Rosneft surprised the markets announcing it would buy 100% of TNK-BP for $61.6 billion. BP owned 50% and the Russian AAR consortium owned 50%. This block buster deal is the second largest oil and gas deal recorded – behind the $82 billion Exxon-Mobil 1998 merger. BP intends to re-invest a portion of its TNK-BP sale proceeds ($4.8 billion) into Rosneft' stock—boosting its equity ownership in Rosneft to 19.75%. Elsewhere in the world, CNOOC bought an additional interest in Australia's Queensland Curtis LNG project for $1.9 billion from BG. In the North Sea, transaction activity continues at a robust pace with Wintershall paying $1.45 billion for select Statoil interests in the Norwegian sector. In addition to a cash payment, Wintershall swapped its 15% WI in the Edvard Grieg license. In the UK sector, Shell bought Hess' interest in Beryl area fields for $525 million.

Looking ahead to large deals hitting the market, SandRidge recently announced intent to evaluate the sale of its Permian basin assets producing 24,500 boepd. This came at a time when Yates Petroleum reportedly rejected a pair of initial offers by Occidental and Concho Resources and is still exploring options. In Canada, several companies continue evaluating asset sales including Chinook Energy and Ravenwood. Internationally, ExxonMobil plans to sell its 60% interest in the West Qurna-1 oilfield in southern Iraq and in Russia; Hess has hired Goldman Sachs to divest its interests in the Volga-Urals region.

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Deal flow increasing as year-end approaches

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