$75 Billion of Oil and Gas Deals Announced Fourth Quarter 2009

PLS, Inc. reports tenfold increase in United States deal values propels global increase

Jan 06, 2010, 16:24 ET from PLS, Inc.

HOUSTON, Jan. 6 /PRNewswire/ -- PLS, Inc. ("PLS") and international partner Derrick Petroleum Services ("Derrick") report that Global M&A activity for the 4th Quarter 2009 totaled nearly $75 billion in 172 separate deals, up from $21 billion in 112 deals in 3rd Quarter 2009. According to Brian Lidsky, Managing Director, Research, at PLS, "ExxonMobil's blockbuster $41 billion all-stock bid to buy U.S. unconventional resource leader XTO Energy took the market by surprise and marked a significant shift for the major back to North America onshore natural gas. The deal vaults ExxonMobil to the largest producer in the United States and gave the market and producers a large dose of confidence. U.S. gas prices have been in a slump for over a year. Shortly after the Exxon deal, French company, Total, struck a $2.25 billion JV with Chesapeake in the Barnett shale of Texas."

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Continuing the momentum in E&P transactions which began in August 2009 with oil prices stabilizing in the $75 range, the 4th Quarter 2009 witnessed ten deals struck globally topping the $1 billion threshold; eight for oil, two for gas. Of the ten deals, four were in the U.S., one in Canada, three in Africa and two in Asia.

In the quarter (see Table 1), the U.S. led all countries in activity with $53.4 billion, followed by Canada ($7.2B), Ghana ($4.0B), Kazakhstan ($2.1B), Turkmenistan ($1.9B), Uganda ($1.5B), and Angola ($1.3B).

In Ghana, media reported ExxonMobil making a $4 billion bid for Kosmos Energy's stake in the offshore Jubilee field. Observers report the deal remains in limbo as the Ghana National Petroleum Company is reportedly in talks with the Chinese. The deal is indicative of the changing nature of the international oil industry.

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

                                                       Deal       Number
                                                      Value        of
    Continent          Country                       (US$ MM)     Deals

                     United States                  $53,357.0        60
                     Canada                          $7,239.7        51
                     Greenland                          $70.0         1
    North America                        Sub Total  $60,666.7       112
                     Colombia                          $100.1         5
                     Argentina                          $28.0         2
                     Brazil                              $3.5         1
    South America                        Sub Total     $131.6         8
                     Italy                              $62.9         2
                     Ukraine                            $46.4         1
                     Ireland                            $21.7         1
                     United Kingdom                     $11.1         2
                     Poland                              $5.0         1
                     Portugal                            $0.4         1
    Europe                               Sub Total     $147.4         8
                     Australia                         $944.1        13
                     New Zealand                        $48.7         1
                     Papua New Guinea                   $24.9         2
    Australia                            Sub Total   $1,017.7        16
                     Ghana                           $4,000.0         1
                     Uganda                          $1,500.0         1
                     Angola                          $1,300.0         1
                     Nigeria                           $412.5         1
                     Gabon                             $282.0         1
                     Guinea                             $51.5         2
                     South Africa                        $7.5         1
                     Tanzania                            $2.4         1
    Africa                               Sub Total   $7,555.8         9
                     Kazakhstan                      $2,069.6         3
                     Turkmenistan                    $1,891.7         1
                     Russia                            $562.0         5
                     Indonesia                         $405.9         4
                     Philippines                        $29.6         2
                     China                              $19.3         2
                     Brunei                             $15.5         1
                     Mongolia                            $6.7         1
    Asia                                 Sub Total   $5,000.3        19
                                         TOTAL      $74,519.5       172

    Note:      Includes all Global Deals with Deal Value Disclosed
    Source:    PLS Derrick Global M&A Database

According to Lidsky, "Oil markets recovered in August and the NYMEX 12-month strip ended the year at $82.34/bbl, up from the December 31, 2008 price of $54.01/bbl. The growing economic recovery helped propel oil prices forward and capital markets and healthy companies responded accordingly. Perhaps beginning in Canada with Korean National Oil Company's $4.0B cash bid (at a 37% stock premium) for Harvest Energy Trust on October 21, corporate activity kicked into high gear. Following suit in the U.S., Denbury Resources bid $4.5 billion (cash and stock) for Encore Acquisition Company on November 1 and ExxonMobil bid $41 billion stock for XTO Energy on December 14. The Exxon deal is a significant premium priced deal for natural gas assets. Natural gas now has the attention of the markets." The 12-month NYMEX natural gas price ended the year at $5.99/MMbtu, only slightly down from the December 31, 2008 price of $6.21/MMbtu - a recovery from a multi-year low in the sub $4.50 range tagged in late April 2009.

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

In the United States, total deal value skyrocketed over tenfold to $53.3 billion (see Table 2) with 60 deals - compared to $4.2 billion and 46 deals in the 3rd Quarter and $5.7 billion and 32 deals in the year-ago period. Lidsky continued, "Even without Exxon's $41 billion deal with XTO, U.S. deal value tripled in size versus the previous quarter. Investor appetite for risk is returning to more normal levels. Deepwater exploration in the Gulf of Mexico is gaining investment dollars and international companies continue expansion here. Late in the quarter, Danish shipping and oil group, Maersk, bid $1.3 billion to buy a portion of Devon's deepwater portfolio. Also indicative of increasing investor risk appetite, Cobalt International successfully completed an IPO on December 16 valuing the equity of the company at $4.5 billion. Cobalt has a great management with a solid exploration portfolio - yet has no production or proved reserves have been booked yet."

                                   Table 2
           United States Oil and Gas M&A Deals - Fourth Quarter 2009

                                Q4     Q1       Q2       Q3        Q4
                               2008   2009     2009     2009      2009

           # of Deals             32     21       46       46        60
       Deal Value (US$MM)     $5,692   $405   $3,876   $4,262   $53,357

    Note:      Includes all U.S. deals with Deal Value disclosed
    Source:    PLS Derrick U.S. M&A Database

"Valuations for conventional U.S. production increased roughly 20% in the quarter based on average values," Lidsky said. For conventional deals, $7.5 billion (16 deals) of proved oil and gas reserves changed hands at $15.86 per BOE and $83,103 per flowing daily BOE on a weighted average basis (see Table 3) - up from $3.2 billion (16 deals) at $9.83 per boe and $70,986 per flowing daily boe in the 3rd quarter.

                                       Table 3
                United States Valuation Metrics - Fourth Quarter 2009
                        Conventional Production Deals Only

                              Deal       Proved     Production
                    Deal      Value     Reserves       Value      R/P   Oil
    Region          Count    (US$ MM)    ($/BOE)   ($/Daily BOE) Years  (%)

    Gulf Coast
     Onshore           5      $1,175      $15.98        $64,210   11.0   54%
    Permian Basin      3      $1,010       $9.76        $92,212   25.9   68%
    Eastern U.S.       2        $119       $8.19        $65,027   21.8   25%
    Mid-Continent      2        $304       $8.33        $51,007   16.8   19%
    Rocky Mountains    2      $4,630      $20.87       $104,092   13.7   67%
    Gulf of Mexico
     (Shallow)         1        $283      $10.44        $29,875    7.8   77%
    Multiple           1         $13       $5.16        $25,373   13.5   46%

               TOTAL  16      $7,533      $15.87        $83,103   14.3   60%
              Median            $142      $11.30        $62,469   13.9   60%
      Simple Average            $471      $12.61        $70,163   15.4   53%

    Note:    Includes U.S. Conventional Deals Only with adequate Deal
              Disclosure for M&A analytics.
    Source:  PLS Derrick U.S. M&A Database

Unconventional gas resources and development in the United States grabbed headlines throughout 2009 (see Table 4). In the 4th Quarter 2009, PLS and Derrick tallied $44 billion in 14 separate transactions. Of the total, Exxon's purchase of XTO Energy, which has operations in virtually all unconventional plays, for $41 billion is the largest to date.

Regionally, the Marcellus shale in the NE United States took top honors for activity - despite controversy regarding drilling in the New York City watershed. A variety of buyers got active, including Canada's Talisman, Ultra Petroleum and Lime Rock Partners. The Barnett shale of Texas took second place with buyers Sumitomo, Total, and Talon Oil and Gas spending to get into the play. The Haynesville shale saw two deals with the Bakken, the Eagle Ford and the Fayetteville shales each striking a single deal.

                         Table 4
          United States Unconventional Deals
                 - Fourth Quarter 2009

                           Deal        Number
                          Value          of
          Area          (US$ MM)        Deals

    Bakken                  $27           1
    Barnett              $2,476           3
    Eagle Ford              $39           1
    Fayetteville             $1           1
    Haynesville            $177           2
    Marcellus              $601           5
    Multiple            $40,661           1

               TOTAL    $43,982          14

    Note:    Unconventional Deals Only
    Source:  PLS Derrick U.S. M&A Database

In terms of deal mix in the U.S. unconventional plays, five deals were for acreage, three were Joint Ventures, three were asset deals, two were corporate takeovers and one was for an override.

Looking forward, deal inventory remains high. Sellers include the majors (Conoco, BP), large independents (Devon, Chesapeake) and numerous small companies. Deals will continue to be driven by industry consolidation and the capital needs of "scale within the shales" as well as normal portfolio rationalization that accompanies every major industry deal.

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 transactions internationally.