$35 billion in Oil & Gas Deals Announced First Quarter 2012

HOUSTON, May 3, 2012 /PRNewswire/ -- PLS Inc. ("PLS") in conjunction with its international partner, Derrick Petroleum Services ("Derrick"), reports that global M&A activity for the First Quarter 2012 slowed to $35.3 billion in 171 separate transactions. This compares to $47.6 billion in 208 deals in Q4 2011 and $42.3 billion in 199 deals in Q1 2011. According to Ronyld Wise, President of PLS Inc., "The number of deals slowed this quarter reversing a recent five-quarter trend of about 200 deals per quarter. We attribute the slowdown in deal activity primarily to continued weakness in North American natural gas prices that continue to test 10-year lows. That said, both PLS and Derrick think the record high oil to gas price ratio of over 50 to 1 makes for an extraordinary deal making environment in the coming months.  On the gas side, well-capitalized contrarian buyers like private equity, overseas interests and MLPs are searching for high-quality gas assets in anticipation of a rebound in North America gas prices.  On the oil side, we expect oil-leveraged resource players with strong cash flows continue to consolidate core areas and expand opportunities."

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Global -- 1st Quarter 2012 E&P Mergers and Acquisitions

Globally, North America led the world in oil and gas transactions (see Table 1) with total deal volume of $27.8 billion or ~80% of transactions by dollar volume. This is up from the prior-three-quarter average of 64%.  The United States accounted for 69 deals or 40% of deal count and 51% of deal value. Canada was a standout this quarter where Canadian natural gas developments with export potential are especially attractive to Asian buyers. In this quarter, Canada accounted for 57 deals or 33% of deal count and 27% of deal value.  Canada's 27% share of global deal value is up from a prior-three-quarter average of about 10% to 12%.  Canada's largest deal this quarter, Mitsubishi's $2.9 billion joint venture with Encana in northeast British Columbia, is an example of the interest of Asian buyers.

According to Yashodeep Deodhar, Managing Partner of Derrick Petroleum Services, "Outside of North America, the highlight of the quarter is the acquisition of London-based Cove Energy with strong assets in the exciting East Africa region including offshore Mozambique and Kenya. The board of Cove just accepted an upward revised cash offer of $1.8 billion from Shell which matched Thailand's NOC PTT Exploration and Production's existing offer. The accepted offer represents a 96% premium to the share price just prior to Cove's early January announcement to initiate a sales process. The transaction is indicative of East Africa's offshore basin emergence as a world class area on the global exploration map."

Regionally, in terms of deal value this quarter, North America ($27.8 billion) was followed by Africa ($2.2 billion), Asia ($1.6 billion), Europe ($1.4 billion) and South America ($1.0 billion). By commodity type, oil accounted for $9.4 billion of transaction value, or 27% of deal value during the quarter, while natural gas-oriented transactions remained steady at $14.2 billion or 40% of deal value.  Deals that involved a mixed-commodity base generated $10.2 billion (29%) in deal value while transactions related to oil sands were $1.3 billion (4%) during the quarter. 

Nine deals topped $1 billion globally during the quarter – five in the United States, two in Canada, one in Mozambique and one in Vietnam (see Table 2).

The pace of deals greater than $1 billion is on trend with 2011 and conventional deals continue to outpace unconventional deals, accounting 67% of deal volume in Q1 2012 (see Table 3).

United States -- 1^st Quarter 2012 E&P Mergers and Acquisitions

In the United States, recorded deal activity in Q1 2012 fell 29% to 69 transactions compared to 97 in Q4 2011.  Ironically deal value also fell 29% to $18.1 billion versus $25.4 billion in Q4 2011 (see Table 4). The largest deal for this quarter, in the United States and globally, was the $7.15 billion sale of El Paso's E&P business by Kinder Morgan to a consortium led by private equity backed Apollo Global Management. Other top U.S. deals were Apache's acquisition of Cordillera ($2.85 billion), Sinopec's JV across five unconventional plays with Devon Energy ($2.2 billion), SandRidge Energy's acquisition of Dynamic ($1.3 billion) and Linn Energy's acquisition of BP's Hugoton gas field assets ($1.2 billion) (see Table 2).

Looking at U.S. transactions by deal type, corporate acquisitions accounted 62% of deal value this quarter, the highest share since Q3 2011 (see Table 5).

Looking Forward

Currently, the deal market remains supplied with a healthy inventory of assets, acreage and companies for sale totaling by PLS and Derrick analysis to be about $88 billion globally. Table 6 below shows recent deals put on the market in Q1 2012 greater than $1 billion.

In North America, we expect deal making to continue to be driven by companies building liquidity to rebalance portfolios towards oil and liquids. This includes the sale of developed gas properties plus a strong demand on the buy-side for oil-weighted properties. Also, the industry is still maintaining an oversupply of acreage packages on the market especially in areas such as the Niobrara which has not yet fully proven to meet operator expectations.  On the gas side, PLS sees a window where buyers who have a longer-term view can enter the market to secure natural gas assets at reasonable prices once "motivated sellers" get comfortable. Rolling hedges that come off this year should also push some properties to market. Current buyers include Asian companies, private equity firms and MLPs. We certainly would not be surprised to see larger, well-capitalized U.S. companies look to the M&A markets to expand their domestic resource base for both oil and gas.

Internationally, we expect M&A activity to follow strong exploration success in areas like East Africa, West Africa and South America. Also, on the technology front, we expect international interests to continue to tap the M&A markets to partner with experienced operators to transfer learnings for opportunities both in and outside of the United States.

Thus far in Q2 2012, global M&A activity has surpassed the $5 billion mark.

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.

Media Contact:
Reid Strand, M&A Analyst, PLS Inc., 713-650-1212, [email protected]

SOURCE PLS Inc.