PLS, Inc. and Derrick Petroleum Services Report U.S. and Canada E&P Deal Momentum Increasing

HOUSTON, Oct. 1 /PRNewswire/ -- PLS, Inc. ("PLS") in conjunction with its international partner Derrick Petroleum Services ("Derrick") reports that Global M&A activity for the 3rd Quarter 2009 totaled nearly $21 billion in 112 separate transactions. According to Brian Lidsky, Managing Director of Research at PLS, Inc., "Oil and gas deal volume increased markedly beginning in late August 2009 due to a confluence of events. These include: 1) a growing consensus that the economy bottomed in the 2nd quarter 2009 and a recovery is under way, 2) price stability of oil in the $65 - $75 per barrel range, and 3) a dramatic drop of U.S. natural gas prices in late August - early September towards the $2.50 range that signaled a buying opportunity to the U.S. markets. For perspective, the oil and gas forward 12-month strips at 3rd Quarter 2009 end were $73.00 per barrel and $5.93 per mcf (thousand cubic feet) versus year ago numbers of $99.02 per barrel and $8.15 per mcf."

Canada led the world in oil and gas transactions (see Table 1) with total deal volume of $6.9 billion in 35 deals and was home to the two largest deals of the quarter. The largest global deal of the quarter is the $2.5 billion merger of Petrobank Energy and Resources and TriStar Oil and Gas Ltd. which went off at a value of $27.79 per barrel of oil equivalent ("BOE") of proved reserves. This strategic merger was driven primarily to form a premier, Bakken-focused light oil and gas E&P company -- newly named PetroBakken Energy Ltd. -- which will provide investors a focus on the unconventional Bakken shale play (which straddles both sides of the U.S. and Canada border) on the Canadian side in southeast Saskatchewan and plus significant upside in the emerging Big Horn and Montney unconventional gas shale plays of northeastern British Columbia. The second largest deal is also an unconventional play in Canada. PetroChina International Investment Limited paid $1.7 billion to acquire a 60% working interest in Athabasca Oil Sands Corporation's ("AOSC") MacKay River and Dover in-situ oil sands projects. Recent independent assessments estimate five billion barrels of bitumen resources for the projects with regulatory approval expected in late 2009 for the first 35,000 b/d phase MacKay River commercial project.

                                  Table 1
              Global Oil and Gas M&A Deals - Third Quarter 2009

                                                Deal         Number
                                                Value          of
    Continent            Country               (US$ MM)       Deals
                        United States           $4,394         45
                        Canada                  $6,904         35
    North America              Sub Total       $11,298         80
                        Argentina                   $2          1
                        Venezuela                 $185          1
    South America              Sub Total          $187          2
                        Netherlands               $404          1
                        Norway                    $138          2
                        Turkey                      $8          1
                        United Kingdom          $1,785          2
    Europe                     Sub Total        $2,335          6
                        Australia                 $767          5
                        Papua New Guinea           $60          1
    Australia                  Sub Total          $827          6
                        Angola                  $1,300          1
                        Egypt                      $13          1
                        Kenya                       $6          1
                        Libya                     $295          1
                        Namibia                     $3          1
                        Syria                     $829          1
                        Tanzania                    $2          1
    Africa                     Sub Total        $2,447          7
                        China                     $417          2
                        Indonesia                   $7          1
                        Kazakhstan              $2,124          3
                        Russia                      $4          1
                        Turkmenistan            $1,187          1
                        Ukraine                     $7          1
                        Vietnam                    $77          2
    Asia                       Sub Total        $3,822         11
                                   TOTAL       $20,916        112

    Source:  PLS, Inc. and Derrick Petroleum Services

According to Lidsky, "The Canadian markets caught fire in late August due to valuations and a re-emergence of the mid-tier E&P sector which had been taken out by acquisitions earlier in the decade due to favorable tax treatment of the Royalty Trusts. When the rules changed overnight and with the January 1, 2011 deadline removing this favorable treatment rapidly approaching, companies are strategically positioning themselves to succeed under these new rules. Royalty Trusts, once acquirers and distributors of cash flow, now are focused on traditional E&P company strategies - growth in underlying asset values via profitable exploration and drilling and growth. Also propelling the Canadian markets is the stability of the oil price and the continued interest and investment of the international companies in Canada's world class oil sands and emerging shale plays."

Globally, the United States ranked as the second most active country in terms of deal value with $4.4 billion deals announced in 45 separate transactions. Regionally, Asia ranked second to North America with 11 deals totaling $3.8 billion -- primarily in Kazakhstan and Turkmenistan. Elsewhere, Africa scored 7 deals for $2.4 billion and just edged out Europe which inked 6 deals for $2.3 billion. Australia remains a politically and geologically favorable area for investment and accounted for 6 deals for $827 million. Despite the success offshore Brazil, South America deal activity lagged the world with only 2 deals for $187 million.

United States -- Third Quarter 2009 E&P Mergers and Acquisitions

In the United States, deal activity also continued to rebound from the virtual standstill experienced in the 1st Quarter 2009 (see Table 2) coming in at $4.4 billion with 45 deals. The pace, however, still lagged the fever pace of a year ago when $14.3 billion of deals in 66 transactions were signed in the 3rd Quarter 2008.

                                     Table 2
                United States E&P Mergers and Acquisitions Recover
                                 from Q1 2009 Low

                             Q3       Q4         Q1      Q2      Q3
                            2008     2008       2009    2009    2009
         # of Deals          66       36         22      50      45
         Deal Value     $14,355   $6,242       $429  $4,565  $4,394

    Source:  PLS, Inc. and Derrick Petroleum Services

According to Lidsky, "Deal activity in the U.S. has heightened considerably with private buyers stepping up to the plate. Regarding conventional plays, investor interest is high in oil producing assets as noted by the surge of activity in the Permian basin of Texas and New Mexico. Unconventional shale gas plays are also very active with Canadian and European investors partnering with solid U.S. operators to leverage operating expertise in these highly technical plays."

In terms of valuations in the U.S., oil and gas proved reserves changed hands at $9.83 per BOE (barrel of oil equivalent) and $70,986 per flowing daily BOE in the 3rd quarter (see Table 3).

                                    Table 3
                 U.S. Valuation Metrics  - Third Quarter 2009
                               Conventional Deals

                           Deal     Proved    Production
                     Deal  Value   Reserves     Value       R/P   Oil
                    Count (US$ MM)  ($/BOE) ($/daily BOE) (Years) (%)
        Region
    Permian Basin     7   $1,351    $9.29       $80,712      24   70%
    Mid-Continent     4   $1,033   $10.13       $61,079      16   13%
    Gulf Coast
     Onshore          3      $56   $11.10       $58,646      14    8%
    Rocky
     Mountains        1     $582   $11.81       $76,579      18   94%
    Eastern U.S.      1     $145    $7.14       $60,216      23    9%
            Total    16   $3,168    $9.83       $70,986      20   51%

    Source:  PLS, Inc. and Derrick Petroleum Services

The largest conventional deals were all corporate takeovers - all by private firms. The largest deal was Hicks Acquisition Co.'s $582 million purchase of Resolute Natural Resources with assets in the Rocky Mountain region. Hicks, headed by Thomas O. Hicks, raised capital as a special purpose acquisition company and will use this transaction to take the company public. In another private company move, Apollo Management bought publicly traded Parallel Petroleum for $495 million. Apollo's move came on the heels of its unsuccessful effort to acquire another Permian basin player, Legacy Reserves.

In terms of the forward looking markets, the inventory of deals available remains high. PLS, Inc. currently has data for 172 offerings from oil and gas brokers as well as an additional 1,100 investment opportunities for drilling ventures, producing properties, overrides and leasing in its listing database. Derrick Petroleum has also catalogued 179 deals available internationally.

PLS, Inc. and Derrick Petroleum Services are partners in providing U.S., Canadian and International clients leading M&A and E&P databases and services. These databases are maintained 24/7 by a team of analysts and are accessible via the web to clients.

PLS, Inc. is a leading industry research and transactions firm based in Houston, Texas. PLS, Inc. provides clients with timely research, transaction services for E&P assets and financial advisory services.

Derrick Petroleum Services is an independent oil and gas research and consulting firm. Derrick's databases have worldwide coverage, with special emphasis on emerging plays and transactions internationally.

SOURCE PLS, Inc.

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