Merger & Acquisition Deal Value Rebounds in Oil & Gas Sector in 2010

LONDON, Feb. 3, 2011 /PRNewswire/ -- The total value of oil and gas transactions announced globally reached $270 billion in 2010, according to Ernst & Young's Global oil and gas transactions review 2010. This is 35% higher than the total for the previous year of $200 billion. In aggregate, 947 deals were announced in 2010, with upstream continuing to dominate the landscape, accounting for 73% of transactions. Volumes were 5% higher than 2009.

Rebounding crude prices (Brent averaged $79.62/bbl in 2010 compared to $74.58/bbl in 2009) and better capital availability provided a support to the increase in deal values. Gas prices, a victim of a robust supply position in a time of moderated demand, were not as strong, but this dynamic also represented an important driver of transaction activity in many regions.

Andy Brogan, Global Oil and Gas Transaction Advisory Services Leader for Ernst & Young, says: "As we predicted, 2010 was a healthier year for upstream and oilfield services transactions, whereas over-capacity in some regions drove a period of uncertainty and challenges in the downstream sector. There have however been diverse regional trends underlying this macro view. 2011 looks set to continue the themes of 2010 against the backdrop of gradually improving capital market conditions."

An improving corporate environment and strengthening share valuations have led to a reversal of last year's dominance of corporate transactions, with asset deals moving from 34% to 58% of 2009 transaction values.  Corporate transactions continue to be a material component of the deal mix, driven by their ability deliver a larger value of reserves as well as critical expertise and people.

In Ernst & Young's separately published Capital Confidence Barometer, at the end of 2010 half of all oil and gas respondents indicated that they were actively looking to take advantage of inorganic growth through M&A. This is more than double the percentage who held this view at the end of 2009.

Brogan comments: "It's likely that this increasing optimism will underpin robust transaction activity levels in 2011, with a greater range of acquirers being active. Smaller companies who have been nursing their balance sheets through recent years may feel greater confidence to return to acquisition activity, and financial investors are also re-establishing their interest in the sector.  Demand from resource hungry NOC's is always with us as well."

IPO activity levels look set to rise. Upstream is likely to remain the engine room of deal flow, with a similarly positive outlook for the oilfield services sector. This optimism, however, must be taken in the context of the wider economy which drives demand for the key end products of the oil and gas industry and determines capital availability. Downstream looks most susceptible to these near term trends and voluntary M&A activity could remain subdued in this sector while over-capacity in some regions continues.

About the Ernst & Young Global oil and gas transactions review 2010

The review offers insights into the main trends in mergers and acquisition activity in the last 12 months and considers the industry's outlook for 2011, focusing on upstream, downstream and OFS activity as well as regional round-ups.

About Ernst & Young's Global Oil & Gas Center

The oil and gas industry is constantly changing. Increasing regulatory pressures, price fluctuations and geopolitical complexities all present significant challenges. Ernst & Young's Global Oil & Gas Center brings together a worldwide team of professionals to help you achieve your potential — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It's how Ernst & Young makes a difference.

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SOURCE Ernst & Young