HOUSTON, May 17, 2011 /PRNewswire/ -- The total value of U.S. oil and gas mergers and acquisitions (M&A) during the first quarter of 2011 experienced a significant increase of 69 percent over the same period in 2010, according to PwC US. Despite fluctuating commodity prices and lingering concerns around global macro-economic events, industry dealmakers announced a number of large and mega deals that contributed to the 76 percent increase in overall average deal value during the first quarter of 2011.
For the three month period ending March 31, 2011, there were 47 deals with values greater than $50 million, accounting for $51.5 billion in deal value, a significant increase from $30.4 billion during the same period last year. First quarter average deal size also increased significantly to $1.1 billion from $620.9 million in the same period in 2010, driven by 23 large deals with a value over $250 million.
There were sixteen corporate transactions with values greater than $50 million, generating 68 percent or $35.2 billion of total first quarter deal value. Thirty-one asset deals with values greater than $50 million contributed $16.3 billion. When compared with the first quarter of 2010, corporate deal value more than doubled from $15.3 billion while volume jumped 100 percent from eight corporate deals. Deal value from asset transactions in the first quarter of 2011 increased 7 percent from $15.1 billion in the first quarter of 2010, while the number of deals in this year's first quarter declined from 41 deals.
"While it's been a choppy and volatile first quarter for commodity prices, the number of deals we saw in the oil and gas sector continued at a brisk pace. There was a significant jump in first quarter total deal value and average deal size compared to a year ago with large and 'mega' deals back in play, which we attribute to the dominance of corporate transactions in the quarter," said Rick Roberge, partner in PwC's energy practice. "Combined with recent market support for $100 oil levels, helping buyers and sellers to agree on terms for potential asset transactions, we believe that the remainder of 2011 will be very robust for deal activity."
For deals valued at over $50 million, upstream deals made up 73 percent of activity in the first quarter of 2011 with 27 transactions, accounting for $25.3 billion, or 50 percent of total first quarter deal value. Oilfield services contributed almost 25 percent in value with seven deals totaling $12.8 billion. Six downstream and six midstream deals contributed $4.6 billion and $4.0 billion in value, respectively.
"Deals in the upstream sector dominated first quarter activity as more companies look to adjust their existing portfolios to align with current market conditions. Companies are working to close on these deals to take advantage of higher oil prices while managing the longer-term prospects of unconventionals," noted Roberge.
According to PwC, there were eight deals with value greater than $50 million related to shale gas, totaling $9.7 billion, including two deals involving the Marcellus Shale totaling $325 million.
"Shale gas plays remain very attractive to global oil and gas companies because of the abundant supply in the U.S.," said Steve Haffner, a Pittsburgh-based partner with PwC's energy practice. "The continued M&A activity in the Marcellus region has been mainly coming from the large, well-financed players, who have a longer-term vision, and can ride out the low natural gas prices we're seeing now.
"With the tremendous amount of shale related deal activity over the past few years, companies are also focused on building the necessary infrastructure to maximize the full potential of unconventional assets. While we're helping companies assess the market for ongoing shale transactions, we've also been helping support their understanding of the complex landscape, including the regulatory, legislative and business risks, so they can make the best informed investment decisions," added Haffner.
For deals valued at over $50 million, foreign buyers announced seven deals in the first quarter of 2011, which contributed $17.6 billion or 34 percent of total deal value, versus 12 deals valued at $17.2 billion in the same period last year. Additionally, there were eight private equity-backed transactions, representing $4.8 billion, or 9 percent of total deal value, compared to just one PE deal during the same period last year.
"Private equity firms continue to make a push into the energy sector, although they're facing stiff competition from corporates with strong balance sheets and a desire to make big investments like those we've seen in the first quarter," said Roberge. "As transaction prices get larger, the financial investment for companies and investors is becoming much more significant. When factoring in the various risks at play during the deal process, having a firm understanding of the fluid variables is critical to exploiting the opportunities and avoiding the risks of any transaction."
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 John S. Herold, Inc.
About the PwC U.S. Energy Practice
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© 2011 PwC. All rights reserved. "PwC" and "PwC US" refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.