$43 Billion in Upstream Oil & Gas Deals Announced in the Second Quarter of 2010

HOUSTON, July 14 /PRNewswire/ -- PLS, Inc. ("PLS") and its international partner Derrick Petroleum Services ("Derrick") report that global merger & acquisition activity for the second quarter of 2010 reached $43.1 billion in 165 transactions as compared with first quarter 2010 volume of $47.7 billion in 157 transactions.  With $90.8 billion in 322 transactions in the first six months of 2010, global M&A activity is on pace to beat the 2009 full year total of $150.1 billion in 500 transactions and is already fast approaching the $114.7 billion in 556 deals in all of 2008.    

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According to Richard Mason, Director of Research at PLS, Inc., "Despite the small sequential drop in second quarter dollar volume, the 2010 transaction market remains dynamic as large international and national oil companies continue to pursue North American unconventional opportunities with the expectation of gaining expertise to use overseas.  In addition, buyers looking to reduce natural gas exposure are finding opportunistic sellers of conventional oil assets."

Mason notes, "The consistent deal activity in the first half of the year highlights a robust marketplace that should continue through the rest of 2010 as long as capital markets remain open and oil prices hold near recent levels."  Mason notes that fickle gas prices and the Macondo blowout are creating uncertainty that could spark additional deal making both offshore and onshore in the U.S.    

Global marketplace —Second Quarter of 2010 Upstream M&A analysis

By region---

Among the regions, North America led the global marketplace with total deal volume of $36.6 billion on 128 transactions, 85% of second quarter deal value.  (See Table 1)  North America was followed by Latin America ($3.3 billion), Europe ($1.9 billion) and Asia outside of the Middle East ($870 million).

Joint ventures---

The second quarter continued the trend of deep-pocketed international players signing joint ventures (JVs) to develop unconventional oil and gas resources.  Total joint venture volume during the quarter topped $4.7 billion.  The two largest JVs involved India's Reliance Industries: the first a $1.7 billion JV with Atlas Energy in the Marcellus Shale and the second a $1.3 billion JV with Pioneer Natural Resources to develop acreage in the Eagle Ford Shale in Texas.  The next largest deals were the $950 million BG Group/EXCO JV in the Marcellus Shale and China Investment Corporation's $802.5 million JV with Penn West Energy Trust to develop Peace River oil sands in Canada.

A&D by deal size---

Royal Dutch Shell's $4.7 billion purchase of Marcellus Shale operator East Resources led all deals followed closely by Sinopec's $4.65 billion purchase of ConocoPhillips' 10% stake in Syncrude.  Apache's $3.9 billion acquisition of Mariner Energy rounds out the top three deals, and with the purchase of Devon's Gulf of Mexico shallow water assets, brings Apache's total to almost $5 billion for the quarter.

Worldwide, eleven deals topped $1 billion during the quarter, about the same pace as the previous two quarters. In all, deals valued at $1 billion or higher represented $25.7 billion, 60% of transaction volume. There were 53 deals valued at $100 million or greater, which represented $41.2 billion, 96% of transaction volume for the quarter.

With the East Resources acquisition and leasing 250,000 net acres in the Eagle Ford Shale during the quarter, Shell made progress on its global strategy to enlarge its unconventional gas footprint.  Shell is targeting 2.3 Bcf/d of production by 2020 from its North American tight gas assets and has now reportedly acquired 1.3 million acres with an estimated 16 Tcfe of resources.

The deals---

Asset deals represented 77% of transaction value during the second quarter, rising above recent historic norms of roughly two-thirds of transaction value.  Corporate transactions represented 23% of global deal flow during the period.  In all, the U.S. accounted for $6.0 billion in corporate acquisitions on six deals during the period, while Canada hosted 18 corporate transactions totaling $3.4 billion.

In addition to Apache's acquisition of Mariner Energy, other significant U.S. corporate acquisitions include SandRidge Energy's $1.5 billion offer for Arena Resources in the Permian Basin, which SandRidge sweetened in June as its stock price fell.  Canada's Crescent Point Energy continued its consolidation of Lower Shauvanon and Bakken assets in Saskatchewan with the $1 billion purchase of Shelter Bay Energy Inc. followed by the $119 million acquisition of Ryland Oil Corp.  Legacy Oil + Gas acquired CanEra Resources, Villanova Resources and assets in southwest Alberta and Saskatchewan for a combined $694 million.

Market motives---

"Divestitures remain a recurring theme in the M&A market as companies eliminate assets deemed as non-core, or seek capital infusions to redirect investment to higher value unconventional assets," according to Mason.  Key divestitures during the quarter include: ConocoPhillips' Syncrude stake for $4.6 billion, Talisman Energy's $1.8 billion in Alberta assets, Nexen's $945 million of heavy oil properties in Western Canada to Northern Blizzard Resources, Inc. and Denbury Resources' $900 million of conventional oil and gas properties in the Permian Basin, Midcontinent, and East Texas originally acquired in the Encore Acquisition Co. purchase to privately held Quantum Resources Management.

By commodity---

Oil-weighted deals accounted for $16.8 billion in transaction volume, 39% of deal value during the quarter, reflecting a significant drop from the $29.6 billion in the first quarter of 2010. Natural gas-oriented transactions, at $15.1 billion, represented 35% of deals. Deals that involved an equally weighted commodity base generated $11.0 billion in volume, up from $5.7 billion in the first quarter of 2010.

United States—Second Quarter 2010 E&P Mergers and Acquisitions

In the United States, deal activity continued at a strong pace with 69 announced transactions during the second quarter of 2010.  U.S. transaction volume reached $22.4 billion, a 17% sequential gain and the second highest total in the last year.  On a year-over-year basis, transaction value in the second quarter of 2010 jumped 479% versus the same period in 2009.  U.S. transaction value bottomed at $405 million in the first quarter of 2009 following the 2008 collapse of commodity prices.  Natural gas-oriented transactions represented 45% of dollar value with oil-oriented deals at 13% during the second quarter of 2010.  Equally weighted oil and gas properties represented 41.5% of dollar volume during the period.  (See Table 2)

The U.S. witnessed 14 conventional deals totaling $8.9 billion during the quarter compared with 19 deals worth $7.4 billion during the first quarter of 2010. On a metric basis- the price paid for production fell 20% versus the prior quarter to $70,352 per barrel of oil equivalent (BOE) per day while the price for proved reserves rose 51% to $19.93 per BOE on the basis of a sharp sequential drop in the reserves-to-production ratio and a jump in oil-oriented transactions which accounted for 51% of conventional deals compared with 23% in the first quarter of 2010.  (See Table 3)

U.S. Unconventional Deals---

Transactions in unconventional resources dominated the U.S. deal-making landscape during the second quarter with 32 deals totaling $12.9 billion, 59% of U.S. total value.  The Marcellus Shale led all unconventional plays with nine deals for $8.2 billion, including Shell's $4.7 billion purchase of East Resources, the Atlas Energy/Reliance Industries $1.7 billion JV, the BG Group/EXCO $950 million JV and Williams Companies' three purchases for $616 million.

The Eagle Ford Shale in Texas witnessed eight transactions topping $3.1 billion in value during the period.  Two JVs accounted for $1.7 billion, 54% of deal volume.  In addition to the $1.3 billion Pioneer Natural Resources/Reliance Industries JV, New York-based private equity firm Kohlberg Kravis Roberts & Co. entered into a $400 million JV in the central oil-oriented Eagle Ford with Hilcorp Energy Co.  Besides Shell's purchase of 100,000 acres for a rumored $1 billion, other Eagle Ford asset acquisitions during the quarter included Talisman's $360 million purchase of 37,000 acres from Common Resources in the gas condensate portion of the Eagle Ford.  Overall, acreage in the Eagle Ford continues to rise in value as operators adjust their business plans in the face of recent success and new competition from firms like Shell, KKR, Talisman and Reliance.

For perspective, the Marcellus and Eagle Ford Shales represented 88% of all unconventional transactions on a dollar volume basis and 52% of all U.S. transactions during the period.  (See Table 4)

About the Parties and For More Media Information:

PLS, Inc. and Derrick Petroleum Services are partners in providing clients around the world with leading upstream oil & gas M&A 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 research, transactions and advisory firm based in Houston, Texas.  Richard Mason, ([email protected] ); Janice Rudd ([email protected]) and Ronyld W. Wise ([email protected]) can be reached at 713-650-1212. Richard Mason can also be reached at 806-438-1607.

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 international transactions.  Yashodeep Deodhar can be reached at  [email protected].

SOURCE PLS, Inc.