Asset Transactions Dominate Total M&A Deal Volume and Value in U.S. Oil & Gas Industry During Third Quarter 2012, According to PwC US

HOUSTON, Oct. 25, 2012 /PRNewswire/ -- With natural gas prices hitting a 10-year low this year, U.S. oil and gas companies have shifted their focus to adding more profitable liquid rich shale plays to their portfolios, leading to a dramatic increase in the number and total value of asset transactions in the third quarter of 2012, according to PwC US. There were 34 asset deals during the third quarter with a total deal value of $31.4 billion, a 131 percent increase in total value over the same time period last year and representing 93 percent of total deal value during the third quarter of 2012. In fact, asset transactions represented nine of the top 10 'mega' deals (deals with values of $1 billion or more) in Q3 2012.

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For the three month period ending September 30, 2012, there were a total of 39 oil and gas deals with values greater than $50 million, accounting for $33.7 billion in deal value, a slight dip from the 44 deals during the third quarter of 2011, and a decline in total deal value from $41.1 billion.

On a sequential basis, while deal volume dropped from the 51 transactions in the second quarter of 2012, total deal value increased by $4.1 billion, with average deal size jumping almost 50 percent to $864 million during the third quarter of 2012.

"The third quarter had 10 'mega' deals, which were dominated by upstream asset transactions as oil and gas companies pursued oily plays due to natural gas prices continuing to remain depressed," said Rick Roberge, principal in PwC's energy M&A practice. "What we saw in the third quarter are companies hunting for more profitable pure oil assets to satisfy the demand of all stakeholders involved. Asset transactions offer the opportunity to specifically target those types of properties." 

For deals valued at over $50 million, upstream deals made up 54 percent of activity in the third quarter of 2012 with 21 transactions, accounting for $18.7 billion, or 55 percent of total third quarter deal value. There were nine midstream deals that contributed $11.1 billion. According to PwC, there has been a rise in processing deals in the midstream sector during 2012 due to the oil and gas liquids being extracted from the shale plays and as companies think through the various scenarios that may play out with exports. Five downstream deals during the third quarter of 2012 added $1.7 billion, while oilfield services contributed four deals worth $2.2 billion.

There were five corporate transactions with values greater than $50 million during the third quarter of 2012, with a total deal value of $2.3 billion, compared to 10 corporate deals representing $27.5 billion in the third quarter of 2011.

According to PwC, there were 16 deals with values greater than $50 million related to shale plays in the third quarter of 2012, totaling $11.7 billion of total deal value, a small decline in the 18 shale-related deals during the third quarter of 2011 and a drop from the $33.1 billion in total deal value. Included in the shale deals in the third quarter of 2012 was one transaction in the Utica Shale worth $600 million.

"At the current commodity prices, the Utica Shale remains an attractive prospect because of its higher liquids content, which more companies are shifting towards in today's economic environment," said Steve Haffner, a Pittsburgh-based partner with PwC's energy practice. "However, the Utica Shale and Marcellus Shale are still relatively immature shale plays in their early stages and, should natural gas prices rise in the short term, we believe there could be a lot more M&A activity in both formations."

The most active shale plays for M&A with values greater than $50 million during the third quarter of 2012 include the Bakken in North Dakota, which had six deals with a total value of $4.4 billion, followed by the Eagle Ford in Texas with three deals representing $658 million.

For deals valued at over $50 million, the volume of financial sponsor-backed transactions increased by one deal during the third quarter of 2012 to seven transactions (totaling $5.3 billion) compared to the same time period in 2011. There were 32 strategic deals that contributed $28.4 billion, compared to the 38 deals worth a total of $37.3 billion during the third quarter of 2011. PwC also notes that during the first nine months of 2012, master limited partnerships (MLPs) were involved in 24 transactions, representing nearly 20 percent of total 2012 deal activity, marking an upward trend of MLP involvement over the past two years (MLPs represented 15.6 percent of total deal activity in 2010 and 18.4 percent in 2011).

The five deals in the Gulf of Mexico during the third quarter of 2012 had a total deal value of $7.4 billion which, according to PwC, marked at least a two and a half year high in deal value in the region.

"We've seen an upward trajectory with MLP deal activity in the energy industry over the past two years, and while MLPs have traditionally been active in the midstream sector, we believe that there will be more activity with upstream assets as the number of upstream MLPs is increasing and more are expected when capital markets are more receptive," added Roberge. "Another trend that we see developing is M&A activity in the Gulf of Mexico, which has seen the highest total deal value during the third quarter than has been recorded in at least two and a half years. Now that the Gulf is clearly back in business for M&A, we believe oil and gas companies will increasingly look there for deal opportunities going forward."

Foreign buyers announced four deals in the third quarter of 2012, which contributed $4.0 billion, versus nine deals valued at $17.6 billion during the same period last year.

PwC's Oil & Gas M&A analysis is a quarterly report of announced U.S. transactions with value greater than $50 million analyzed by PwC using transaction data from IHS Herold.

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SOURCE PwC US