$44 Billion in Upstream Oil & Gas Deals Announced in the Third Quarter of 2010

HOUSTON, Oct. 5 /PRNewswire/ -- PLS, Inc. ("PLS") in conjunction with its international partner Derrick Petroleum Services ("Derrick") reports that Global M&A activity for the third quarter 2010 totaled $43.8 billion in 154 separate transactions. Quarterly deal flow continued 2010's active pace with transaction dollar volume similar to first and second quarter 2010 totals ($49 and $44 billion respectively).  Year to date, global M&A activity exceeds $136 billion on 491 transactions and is on track to top $150 billion by year end.

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According to Richard Mason, Director of Research at PLS, "Divestitures among the majors and resurging interest in the oil-rich Permian Basin characterized an otherwise slow market in global transactions during the third quarter. Although the pace of dealmaking fell to the lowest level in a year, a healthy volume of deals remains on the market. That should allow 2010 dealmaking to finish at the highest level in three years."

Global marketplace ---Third Quarter of 2010 Upstream M&A Analysis

By region---

North America led the global marketplace with 100 transactions totaling $18.1 billion, or 41 percent of value by dollar volume. (See Table 1). On a dollar value basis, North America was followed by Asia ($17.2 billion), Europe, including the North Sea ($4.4 billion), and South America ($2.2 billion). Other regional transaction totals include Australia ($1.1 billion), Africa ($767.6 million) and the Middle East ($40.6 million).

BP Post Macondo---

BP's effort to raise cash to offset damages resulting from the Macondo well blow out was a significant stimulus to third quarter dealmaking. In all, BP divested $8.9 billion in global properties, including holdings in Egypt, Colombia, Canada, and the Permian Basin region of the United States. BP accounted for 20 percent of global deal making on a dollar volume basis during the third quarter. The British major's divestiture program is still underway with the company recently receiving approval from Venezuela's PDVSA for the sale of BP minority stakes with PDVSA in two Venezuelan oil fields. BP is also shopping its holdings in Vietnam. Both TNK-BP and PDVSA have expressed interest in BP's Venezuelan holdings.

Resurging U.S. Permian Basin---

Domestically, operator emphasis on oil and natural gas liquids was a major transaction stimulus, highlighted by rising transaction volume in the Permian Basin where Apache Corporation picked up BP's Permian assets for $3.1 billion and Concho Resources acquired New Mexico independent Marbob Energy in a $1.65 billion merger. Other significant transactions during the quarter involved Linn Energy's $442 million purchase of Wolfberry assets in two separate transactions and Energen's $185 million Wolfberry purchase from Limestone Exploration and its various partners.

Joint ventures---

The joint venture movement that dominated dealmaking in prior quarters slowed markedly during the third quarter.  Joint venture transactions in the U.S. tallied $648 million, down from the $4.6 billion that characterized the second quarter 2010.

"Despite the quarterly drop in domestic joint ventures, buyers and sellers still find the JV business model an attractive way to bring value forward for sellers in oil and gas plays that require substantial upfront capital investment while simultaneously providing participation in frontier plays for buyers," Mason said.

A&D by deal size---

Vedanta Group's $8.9 billion purchase of a 51 percent stake in Cairn India led all deals globally during the third quarter, followed by Lukoil's $5.8 billion re-purchase of ConocoPhillips' 13.05 percent stake in the Russian major.

Vedanta is a diversified nonferrous metals and mining company whose holdings are located primarily in India. The deal marks Vedanta's first significant foray into oil and gas and will provide controlling interest in India's third largest oil and gas company by revenues. Cairn India currently produces 120,000 Boepd.

ConocoPhillips' divestiture of its Lukoil stake follows on the heels of the company's $4.6 billion sale of its Syncrude Project stake to Sinopec in April 2010. ConocoPhillips also sold its 24.5 percent stake in two Indonesian offshore blocks and a 20 percent stake in three Peruvian blocks in 2010. The Houston-based major, which is undergoing a corporate restructuring that involves the divestiture of more than $10 billion in assets, did not disclose the value of the latter two sales.   The company has also been quiet on various U.S. and Canadian offerings to date which could signal continued negotiations or the majors disappointment with early offers.

Although Vedanta had the biggest acquisition this quarter - Houston-based Apache Corporation has been the busiest, spending $7.1 billion for purchases of BP's stakes in the Permian Basin, Canada, and Egypt.  In all, Apache has spent $12.1 billion so far this year with significant corporate acquisitions of Mariner Energy and a roll up of Devon's shallow Gulf properties in addition to the third quarter purchase of BP's divested assets.

The deals---

Asset-based deals represented 52 percent of transaction value during the period, marking a sharp reversal from recent trends in which similar deals accounted for roughly two-thirds of transaction value.  Besides Vedanta and Lukoil, other international corporate deals include Korea National Oil Corporation's $2.9 billion acquisition of Dana Petroleum, which provides the Asian national oil company entree into the North Sea.

Significant U.S. corporate acquisitions during the quarter include Concho Resources' merger with Marbob Energy in a $1.65 billion deal that marked the debut of the Bone Spring Trend play in the Permian Basin. Concho has been a significant consolidator of oil resource plays in the Permian Basin, including the 2005 acquisition of Henry Petroleum, a pioneer in the development of the Wolfberry play.

By commodity---

Oil-weighted deals accounted for $22.0 billion in transaction volume, or 50 percent of deal value, during the quarter. Year-to-date, oil-focused deals represent half of all transactions and have topped $66.2 billion in dollar value. Natural gas oriented transactions, at $10.9 billion, represented 25 percent of global deals during the quarter, down noticeably from the torrid pace earlier this year while deals that involve a mixed commodity base generated $10.9 billion in volume, essentially unchanged (25%) versus the prior quarter.

Large deals dominated the marketplace on a dollar volume basis. Ten transactions topped $1.0 billion globally during the quarter, slightly below the pace from the previous two quarters. Deals valued at $1.0 billion or higher represented $32 billion, or 73 percent of transaction volume. There were 46 deals valued at $100 million or greater, reaching an aggregate value of $41.9 billion, or 96 percent of transaction volume for the quarter.

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

Deal activity in the United States fell to the lowest level in a year after a blockbuster run during the first half of 2010.

The U.S. recorded $10.3 billion in transactions on 46 deals during the third quarter 2010, a 55 percent sequential drop versus the prior quarter. The pullback is deceptive since more than $8.0 billion in potential transactions are currently being shopped in the U.S. market with expectations of announcement prior to year end. By commodity, oil weighted deals represented 17 percent and natural gas 37 percent. Properties sold with a mix of oil and gas represented 46 percent of transaction dollar volume during the period. U.S. transaction value bottomed in the first quarter 2009 at $405 million following the 2008 collapse in commodity prices.

United States Oil and Gas M&A Deals Third Quarter 2010

The U.S. witnessed 13 conventional production deals totaling $5.8 billion during the quarter compared to 14 deals and $6.8 billion in value during the second quarter 2010.

On a metric basis, valuations rose 40 percent to $98,724 per flowing BOE versus the prior quarter on the basis of a greater weighting for oil. However, the dollar value for proved reserves fell 19 percent to $16.2 per BOE despite expansion in oil-related transactions, which represented 57 percent of conventional deals in the third quarter compared to 51 percent in the second quarter 2010.

United States Valuation Metrics Third Quarter 2010

After a stellar run during the first half of 2010, transactions in unconventional resources dropped significantly during the third quarter to 21 deals totaling $3.5 billion. Dollar volume fell 73 percent when compared to the $12.9 billion in transactions involving unconventional resources during the prior quarter. The Barnett Shale topped transaction activity in the unconventional plays, highlighted by Chesapeake's $1.15 billion VPP, followed by the Bakken Shale with three deals totaling $895 million in value during the quarter, including Enerplus' $456 million purchase of assets from undisclosed sellers, and Hess Corporation's corporate acquisition of American Oil and Gas Inc., which will expand Hess' Bakken exposure to the west of the Nesson Anticline.

The Marcellus Shale fell to third in aggregate dollar volume after dominating unconventional deal transactions during the first half of 2010. The shale play recorded six transactions for $631 million. Significantly, four of the six deals reporting dollar volume involved joint ventures, including Reliance Industries' entry into a $392 million JV with Carrizo Oil and Gas and Avista Capital Partners. Similarly, Japan's Sumitomo formed a JV with Rex Energy to develop Rex' Marcellus holdings.

India's Reliance Industries has now executed $3.4 billion in shale play joint ventures during 2010.

The Haynesville Shale placed fourth on a dollar volume basis during the third quarter, led by XTO Energy's $570 million corporate acquisition of Ellora Energy. XTO is a subsidiary of ExxonMobil.

United States Unconventional Deals — Third Quarter 2010

PLS, Inc. and Derrick Petroleum services are partners in providing U.S., Canadian and International clients leading Global and U.S. 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, 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 international transactions.

SOURCE PLS, Inc.