U.S. Oil & Gas M&A Activity Reaches Highest First Quarter Volume in More than a Decade, According to PwC US

Upstream and Foreign Buyers Set Precedent for Most Deal Volume in Any First Quarter Over Past Five Years

News provided by

Apr 30, 2014, 09:00 ET

HOUSTON, April 30, 2014 /PRNewswire/ -- Mergers and acquisitions (M&A) in the oil and gas industry reached the highest first quarter level of deal volume in more than a decade due to increased activity in the upstream sector and interest in oil and gas assets by foreign players, according to PwC US. Although deal activity was high, the total value of deals dipped compared to the fourth quarter of 2013 due to companies divesting smaller non-core assets, a trend that PwC expects to continue through 2014.

For the three month period ending March 31, 2014, there were a total of 43 oil and gas deals with values greater than $50 million accounting for $19.8 billion, compared to 41 deals in the first quarter of 2013. However, on a sequential basis, deal volume in the first quarter of 2014 dropped by 23 percent from the 56 deals in the fourth quarter of 2013, with total deal value in the first three months of the year declining 54 percent from $43.0 billion in the fourth quarter of 2013.

"The first three months of 2014 represented a historic first quarter across the board led by deal activity in the upstream sector, including in the Gulf of Mexico and interest from foreign players," said Doug Meier, PwC's US energy sector deals leader. "Divestures continue to be a major source of deal activity, but we are seeing smaller deals taking place; larger portfolio adjustments have already been made. Smaller deals are also happening in the oilfield services sector as a result of companies selectively looking to fill in the white space by adding assets that can increase productivity and reduce costs. We're working with companies to analyze the deals that are on the table to improve overall business operations."

Upstream deals accounted for 63 percent of deal activity in the first quarter of 2014 with 27 transactions, representing $14.2 billion, or 72 percent of total first quarter deal value. There were four midstream deals that contributed $1.3 billion, a 91 percent decrease in deal value from the fourth quarter of 2013. Nine oilfield services deals totaled $2.3 billion, representing a 390 percent year-over-year growth in deal value and a 350 percent year–over-year growth in deal volume. Three downstream deals during the first quarter of 2014 added $2.0 billion.

Foreign buyers announced 12 deals in the first quarter of 2014, which contributed $8.3 billion, or 42 percent of total deal value, versus 10 deals valued at $4.3 billion during the same period last year, representing a 92 percent increase in deal value. On a sequential basis, the number of total deals remained the same as total deal value increased 72 percent.

Deal activity in the Gulf of Mexico represented five deals worth $3.9 billion, compared to one deal worth $100 million in the fourth quarter of 2014.

For deals valued at over $50 million, asset transactions continued to dominate total deal volume during the first quarter of 2014 with 36 deals representing 84 percent of total deal volume. Deal value reached $13.2 billion or 67 percent of total deal value for the first quarter of 2014. Corporate transactions represented seven deals totaling $6.5 billion during the quarter.

According to PwC, there were 17 deals with values greater than $50 million related to shale plays in the first quarter of 2014, totaling $6.2 billion, or 31 percent of total deal value. In the upstream sector, shale deals represented 14 transactions and accounted for $5.7 billion, or 29 percent of total upstream deal value in the first quarter of 2014. There were two midstream shale-related deals in the first quarter of 2014, representing $210 million, a drop in volume from the six deals representing $7.7 billion in the first quarter of 2013.

"First quarter shale deal activity was on par with what we anticipated as we see the continued shift towards unconventionals," said John Brady, a Houston-based partner with PwC's energy practice. "A third of total deal value was related to shale plays in the first three months of the year, indicating the ongoing attractiveness of capitalizing on the long-term prospects for shale gas. Unconventionals will continue to play a large part in deal activity going forward, as will finding opportunities for reducing cycle times and increasing productivity through new technologies and processes to increase speed and efficiency."

The most active shale plays for M&A with values greater than $50 million during the first quarter of 2014 include the Eagle Ford in Texas, which had five deals with a total value of $3.0 billion, followed by the Bakken and Permian plays with three deals each, representing $863 million and $276 million, respectively. The Utica Shale generated only one deal; however this deal represented the second largest in value in the first quarter at $924 million. The Niobrara contributed one deal worth $180 million.

During the first quarter of 2014, master limited partnerships (MLPs) were involved in 11 transactions, representing about 27 percent of total deal activity in the quarter, consistent with recent historical levels.

Financial investors continued to show interest in the oil and gas industry with two total transactions, totaling $1.9 billion during the first quarter of 2014, which was more than a 230 percent jump in deal value compared to the same time period in 2013.

"Although financial investor deal activity was low during the quarter, we're still seeing continued interest from these players, particularly in the upstream and Gulf of Mexico as they're looking to capitalize on divested assets from corporates," added Rob McCeney, PwC U.S. energy & infrastructure deals partner.

PwC notes that during the first quarter of 2014, there were five mega deals, representing $10.1 billion, compared to eight mega deals worth $19.7 billion in the first quarter of 2013.

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.

About the PwC U.S. Energy Practice

We focus on customizing three things- assurance, tax and advisory services- to meet the unique challenges of energy companies. How we use the knowledge and experience we've gained from serving the largest and most complex energy companies to the entrepreneurial start-ups depends on our clients' goals and culture. Taking the time to get to know our clients and listening to their needs lets us use our energy team-- of 3,100 people located around the world -- to create the value our clients want.

For more information about PwC's Energy practice, visit: www.pwc.com/energy.

About PwC US
PwC US helps organizations and individuals create the value they're looking for. We're a member of the PwC network of firms in 157 countries with more than 184,000 people. We're committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/US. Gain customized access to our insights by downloading our thought leadership app: PwC's 365™ Advancing business thinking every day.

Learn more about PwC by following us online: @PwC_LLP, YouTube, LinkedIn, Facebook and Google +.

© 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC US refers to the US member firm, and PwC may refer to either the PwC network of firms or the US member firm. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

Logo - http://photos.prnewswire.com/prnh/20100917/NY66894LOGO

SOURCE PwC US