M&As And Investments Decreased In The Oil & Gas Industry In Q2 2012

Friday 27 July 2012, Amsterdam

The new Oil & Gas Quarterly Deals Analysis: M&A and Investment Trends - Q2 2012 report is a reliable source of essential data on and analysis of mergers and acquisitions (M&As), and financing in the oil and gas industry. The report provides detailed information on M&As, equity/debt offerings, private equity (PE), venture financing and partnership transactions registered in the oil and gas industry in Q2 2012. The report offers detailed comparative data on the number of deals and deal values in the last five quarters segregated into deal types, segments, and geographies. Besides, the report furnishes information on the top PE, venture capital (VC), and advisory firms in the oil and gas industry.

The data presented in this report from proprietary in-house Oil and Gas eTrack deals database, and through primary and secondary research.

M&A Activity Decreased In The Oil And Gas Market In Q2 2012

M&As, which include change in ownership and control of companies (the report does not consider this value as a new investment in the market), in the oil and gas industry recorded a decrease of a 15% in the number of deals from 163 in Q1 2012 to 138 in Q2 2012. However, deal value recorded an increase from $36.3 bn in Q1 2012 to $46.5 bn in Q2 2012. Such increase resulted from some of the high-value transactions such as Petronas’s agreement to acquire Progress Energy Resources for $5.36 bn, Energy Transfer Partners’s agreement to acquire Sunoco for $5.3 bn, and Macquarie Consortium’s agreement to acquire Open Grid Europe from E.ON for $4.07 bn recorded in Q2 2012.

M&As in the upstream energy sector accounted for 40% of the total deals with 57 in Q2 2012, followed by equipment and services sector with 55 deals. In terms of deal value, the upstream sector recorded deals worth $15.4 bn in Q2 2012, followed closely by midstream energy sector with $15.3 bn. The conventional segment in the upstream energy sector was dominant in M&A activity with 38 deals worth $5.9 bn in Q2 2012 (down from 50 deals worth $7.4 bn in Q1 2012). The number of deals and values in the unconventional segment increased considerably from 13 deals worth $8.2 bn in Q1 2012 to 19 deals worth $9.6 bn in Q2 2012.

11 M&A deals worth over $1 bn were registered Q2 2012, up 33% from Q1 2012’s nine deals. Deal values of more than $1 bn each accounted for 68% of the total deal value in Q1 2012, while similar deals accounted for 72% in Q2 2012.

M&A transactions remained buoyant in the North American market with 65 deals worth $26.5 bn in Q2 2012, accounting for 47% of the deals and 57% of total deal value in the oil and gas industry in the quarter, followed by Europe with 35 deals worth $15 bn, constituting 25% of the total deals and 32% of total deal value.

Some of the high-value transactions in upstream energy sector include Petronas’s agreement to acquire Progress Energy Resources for $5.36 bn; PTT Exploration and Production’s agreement to acquire Cove Energy for $1.96 bn; Concho Resources’s agreement to acquire Three Rivers Operating from Riverstone Holdings and Carlyle Group for $1 bn; Halcon Resources’s agreement to acquire GeoResources for $1 bn; and Marathon Oil’s agreement to acquire Paloma Partners II for $750 M. In the midstream energy sector, Cassa Depositi e Prestiti’s agreement to acquire around 30% interest in Snam Rete Gas from Eni for $4.4 bn and Macquarie Consortium’s agreement to acquire Open Grid Europe from E.ON for $4.07 bn were some of the high value deals recorded in Q2 2012. In the downstream energy sector, Energy Transfer Partners’s agreement to acquire Sunoco for $5.3 bn and Couche-Tard Norway’s agreement to acquire Statoil Fuel & Retail for $2.65 bn in a tender offer were some of the high value deals recorded in Q2 2012.

According to Lead Analyst Swati Singh, “Market volatility combined with softening of crude oil price and lower natural gas price led to decreased merger and acquisition activities in oil and gas industry. We expect merger and acquisition activities in the Oil & Gas industry to increase in the coming months driven by above $85 crude oil price and stable financial markets. Restructuring by major oil and gas companies to focus on core projects and aggressive spending by major oil companies to acquire companies with unconventional exposure will dominate the oil and gas M&A market in 2012.”

New Investments Decreased In Oil and Gas Industry In Q2 2012

New investments in oil and gas companies, including financing through equity offerings, debt offerings, private equity and venture financing, registered a decrease of 25% in the number of deals and 26% in deal value with 326 deals worth $83.2 bn in Q2 2012, as compared to 432 deals worth $112.3 bn in Q1 2012. The difference in deal value in this quarter was mainly due to Apollo Global Management and Riverstone Consortium’s acquisition of EP Energy from El Paso for $7.15 bn; Petroleo Brasileiro’s four separate debt offerings of notes with combined value of $7 bn; Enel’s public offering of 4.875% bonds, due 2018, for $3.3 bn; and Blackstone Group’s proposed investment of $2 bn in Cheniere Energy Partners recorded in Q1 2012.

The majority of investments came from the issuance of debt instruments, which accounted for 76% of the total investment with $63.6 bn in Q2 2012 (down from $80 bn in Q1 2012). In terms of the number of deals, equity offerings were on the top of list, accounting for 56% of the total deals with 182 deals in Q2 2012 (down from 231 deals in Q1 2012).

Substantial new investments were made in the upstream energy sector with 217 deals in Q2 2012, followed by midstream energy sector with 84 deals. However, deal value was higher in the midstream energy sector with $49 bn in Q2 2012, while upstream energy sector recorded deals worth $44.5 bn in the same quarter. The average investment deal value in the upstream energy sector decreased from $238.8m in Q1 2012 to $207.9m in Q2 2012, whereas the average investment deal value in the midstream energy sector decreased from $645m in Q1 2012 to $617.8m in Q2 2012.

Capital raising, through the issuance of debt instruments, by companies in North America registered a decrease in the number of deals and deal value with 63 deals worth $24.7 bn in Q2 2012, as compared to 84 deals worth $31.7 bn in Q1 2012. The raising of capital through equity offerings by companies in North America also registered a decrease in the number of deals and deal value with 127 deals worth $11.1 bn in Q2 2012, as compared to 159 deals worth $17.3 bn in Q1 2012.

The PE/VC deal value recorded a significant decrease of 49% in the number of deals with 29 deals in Q2 2012, as compared to 57 deals in Q1 2012. The large difference was due to relatively lower number of deals in North America, down from 46 in Q1 2012 to 22 in Q2 2012. Deal value also registered a significant decrease of 72% from $12.4 bn in Q1 2012 to $3.5 bn in Q2 2012. The difference was mainly due to three high value deals in Q1 2012, namely, Apollo Global Management and Riverstone Consortium’s acquisition of EP Energy from El Paso for $7.15 bn, Blackstone Group’s proposed investment of $2 bn in Cheniere Energy Partners; and Icahn Partners’s acquisition of 64.64% stake in CVR Energy in a tender offer for $1.97 bn.

Asset Transactions Declined, While Deal Value Increased In The Oil And Gas Industry In Q2 2012

Asset transactions in the oil and gas industry registered a marginal decrease of 8% in the number of deals and an increase of 24% in deal value with 240 deals worth $17.5 bn in Q2 2012, as compared to 261 deals worth $14.1 bn in Q1 2012. On a year-on-year basis, the industry registered a decrease of 26% in the number of deals from 323 in Q2 2011 to 240 in Q2 2012. However, deal value was slightly higher with $17.5 bn in Q2 2012, as compared to $17 bn in Q2 2011.

Asset transactions in the upstream energy sector accounted for 85% of the total number of deals and 88% of the deal value with 204 deals worth $15.4 bn in Q2 2012. Of the total transactions, 148 deals worth $13.2 bn were registered in the conventional segment and the remaining 56 deals worth $2.2 bn were registered in the unconventional segment.

North America registered 152 deals, accounting for 62% of the deals in Q2 2012. Of the total, 116 deals were registered in the US prolific oil and gas zones of Texas with 37 deals followed by 13 deals in Oklahoma and six deals each in Montana and North Dakota.

The average cost ($) of production per barrel of oil equivalent per day (boepd) incurred by companies for the acquired upstream assets/companies registered an increase from $78,987.7in Q1 2012 to $86,671.4 in Q2 2012. For 1P or proved reserves, the average implied deal value registered a marginal decrease from $23.3 in Q1 2012 to $21.3 in Q2 2012, while the average implied deal value for 2P or proved plus probable reserves recorded an increase from $16.5 in Q1 2012 to $17.5 in Q2 2012.

Mitsubishi Consortium’s agreement to acquire minority interest in Wheatstone LNG Project from Chevron Australia, valued at $4.4 bn; Japan Australia LNG’s (MIMI Browse) agreement to acquire 14.7% stake in Browse LNG Project in Australia from Woodside Browse for $2 bn; LINN Energy’s agreement to acquire Jonah and Pinedale properties from BP for $1.02 bn, and KOGAS’s agreement to acquire minority interest in Prelude FLNG project from Shell for $694m were some of the high value asset transactions recorded in Q2 2012.

According to Lead Analyst Swati Singh, “Upstream assets transaction dominated the assets transaction in oil and gas industry, with North America accounting for the majority of the deals. We expect unconventional oil and gas resources to dominate oil and gas M&A activities and companies focus will be more towards liquid rich shale gas plays (Eagle Ford, Marcellus) and oil shale plays such as the Bakken.”

Capital Raising Through Debt Offerings And Equity Offerings Decreased In Q2 2012

Global capital raising, through the issuance of debt instruments, in the oil and gas industry recorded a decrease of 20% in the number of deals and deal value with 115 deals worth $63.6 bn in Q2 2012. Of the total debt offering deals in Q2 2012, 70 were public offerings (down from 83 in Q1 2012) and 45 were private placement (down from 61 deals in Q1 2012).

Raising of capital through public offerings also registered a decrease from $56.8 bn in Q1 2012 to $45.8 bn in Q2 2012. Similarly, the average public offering deal value also registered a decrease from $683.8m in Q1 2012 to $673.96m in Q2 2012. At the same time, private debt placements recorded a decrease in deal value from $23.2 bn in Q1 2012 to $17.8 bn in Q2 2012. However, the average private debt placement value increased from $380.5m in Q1 2012 to $395.9m in Q2 2012. The average debt offering value in North America was around $404.4m in Q2 2012, while the average debt offering deal value in Europe was around $976.9m in Q2 2012.

Global capital raising, through equity offerings, recorded a decrease of 21% in the number of deals and 19% in deal value with 182 deals worth $16.1 bn in Q2 2012, as compared to 231 deals worth $20 bn in Q1 2012. Of the total 182 deals, 122 were PIPE deals, 55 deals secondary offerings, and five were IPO deals in Q2 2012. The average equity offering value recorded an increase from $87m in Q1 2012 to $89m in Q2 2012.

Deal Activity Decreased In North America In Q2 2012

Deal activity in the North American oil and gas industry registered relatively slower momentum with a decrease in the number of deals and deal value from 533 deals worth $93.5 bn in Q1 2012 to 433 deals worth $72.9 bn in Q2 2012. The region accounted for 62% of the total asset transactions and 41% of the deal value in the oil and gas industry in Q2 2012, with 152 deals worth $7.5 bn in Q2 2012. Of the total, 126 deals were registered in the upstream energy sector (81 deals in the conventional segment and 45 deals in the unconventional segment). M&As in North America registered 65 deals in Q2 2012. Of the total, 25 deals were registered in the upstream energy sector (10 were registered in the conventional segment and 15 were registered in the unconventional segment).

Europe and Asia-Pacific recorded a decline in the number of deals with 146 and 128 deals in Q2 2012, as compared to 178 and 143 deals in Q1 2012. However, deal value registered an increase from $19.2 bn and $39.9 bn in Q1 2012 to $19.5 bn and $46.7 bn respectively in Q2 2012. In Europe and Asia-Pacific, upstream energy sector activity was concentrated in the conventional segment with 67 deals in Q2 2012, while 13 deals were registered in the unconventional segment. The rest of the world, including South and Central America and the Middle East and Africa, recorded a decrease in the number of deals and deal value with 70 deals worth $8.7 bn in Q2 2012, as compared to 87deals worth $13.2 bn in Q1 2012.