Record year for global oil and gas transactions in 2012
- Upstream activity levels saw slight decline, but M&A spend rose
- Downstream transactions declined marginally in 2012
LONDON, Jan. 24, 2013
LONDON, Jan. 24, 2013 /PRNewswire/ --With an average of more than four
transactions announced every day in 2012, the oil and gas sector has remained
one of the most active global sectors for mergers and acquisitions. According
to Ernst & Young's Global oil and gas transactions review, oil and gas
transactions recorded a staggering US$402b in 2012, representing a 19%
increase compared to 2011 (US$337b). Ninety-two transactions exceeded US$1b in
value compared to just 71 in 2011. This was despite a marginal decrease in oil
and gas transaction volumes from 1,664 deals in 2011 to 1,616 in 2012.
Oil and gas transactions activity by segments
Upstream remained the most active segment with US$284b worth of transactions
accounting for 71% of total deal values. North America continued to be the
most dominant region for activity, accounting for approximately 52% of the
upstream transactions volume. However, within North America, transaction
volumes were supported by a rapidly growing Canadian deal market whilst the US
Andy Brogan, Ernst & Young's Global Leader Oil & Gas Transaction Advisory
"2012 saw a continuation of trends we have seen for the last few years
supported by a relatively benign oil price environment. The increase in the
number of larger deals was a function of more capital becoming available to
the right class of buyer together with increased pressure from asset and
company owners to crystallize returns."
Transactions values in the downstream segment were flat at US$42b, with
volumes also fairly stagnant at 162 transactions (6% lower than 2011). The
decline is particularly evident in the US and South America, where transaction
volumes have reduced by eight and seven transactions respectively.
"Companies remain cautious in mature markets due to the continuing downside
risks for oil product demand, driven by the uncertain economic outlook and
austerity measures. Storage facilities that deliver global connectivity and
trading potential remain attractive to acquirers, with conversion of refining
facilities also being considered," continues Brogan.
In contrast, transactions volumes in Asia have increased by nine transactions
as demand for oil products continues to surge in the region.
The number of transactions in the midstream segment in 2012 decreased by 19%
from 111 in 2011 to 90 in 2012. The reported deal value decreased
significantly, from US$87.3b in 2011 to US$50.3b in 2012 due to the absence of
a blockbuster deal such as Kinder Morgan's acquisition of the El Paso group.
North America accounted for 78% of all midstream transactions, but this was a
decline from the 83% dominance of the region in 2011. Midstream activity
levels will likely continue to increase outside of North America as
infrastructure ownership further disaggregates from upstream assets, driven by
capital allocation and regulatory factors.
Oilfield services fastest-growing segment for a second year
The fastest-growing segment for transaction volumes was oilfield services,
repeating last year's healthy growth. Total oilfield service volume of 212
deals was up almost 10%. The aggregate deal value in 2012 dropped by a third
to US$26b, reflecting the absence of deals with scale comparable to the
US$8.7b Ensco-Pride merger of 2011.
Brogan says: "Financial investors showed an increased appetite for oilfield
services transactions, playing a role in 3 of the segment's top 10 deals.
Access to new technologies, particularly around subsurface applications, which
supports expansion into hard-to-access growth markets, fueled trade players
Transactions activities by region
oAfrica's transaction volume increased from 93 in 2011 to 97 in 2012.
Although there has only been a moderate increase in reported transaction
volume with reported transaction values growing significantly with
US$11.7b of deals in 2012, up from US$7.7b reported in 2012. Sinopec's
US$2.5b acquisition of Total's 20% interest in Nigerian deepwater block
OML 138, the largest oil and gas transaction in Africa during 2012, gave a
significant boost to the average deal value. The expected outlook for 2013
is for greater deal flow and consistency with the 2012 regional trends.
oAustralia's transaction activity was again relatively subdued. The number
of deals remained steady at 86 compared to 84 last year, with limited
opportunities available for M&A activity. However, the deal value more
than doubled from US$7.8b to US$16.2b. Consistent with 2011, most of the
transactions (88%) were in the upstream sector. This trend is likely to
continue into 2013.
oCanada's oil and gas industry continues to be very active. The volume of
transaction activity in 2012 was up 18% compared to 2011 (228 vs. 193) but
was dramatically higher in terms of deal values, led predominantly by the
upstream sector. Deal value increased by 241% year-on-year, from US$15.2b
to US$51.9b, mainly as a result of the US$15.1b CNOOC and US$5.8b Petronas
deals. In 2013, Foreign investors will likely be placing renewed emphasis
on entering strategic alliances and joint ventures, with Canadian domestic
partners retaining some form of control.
oThe CIS region showed significant activity and the landmark oil and gas
transaction of the year. The deal value of transactions in 2012 tripled
when compared to 2011 and reached US$77.3b, mostly as a result of the
acquisition of TNK-BP by the Russian NOC, Rosneft. However, the number of
deals was down slightly from 2011.
oEurope's oil and gas sector delivered strong activity in 2012. Overall
transaction volumes of 179 fell short of 2011's 189 deals, but their
combined value of US$29.3b exceeded the 2011 level of US$24.1b. Upstream,
where European activity centers on the North Sea, delivered the greatest
share of deal volume. Upstream transaction volume of 139 was down slightly
from the 146 deals in 2011. Overall deal value of US$11.7b in 2012
compares with US$10.6b in 2011.
oAsian NOCs continued to invest in overseas acquisitions backed by robust
cash reserves. Major transactions were largely driven by the Chinese NOCs
that shifted focus slightly to acquiring stakes in upstream assets in more
developed countries, particularly unconventional plays in North America.
oIndia's dependence on energy imports continues to increase given the
country's stagnant domestic production and heightened demand of oil and
gas. Over the coming quarters, deal activity is likely to increase given
the various initiatives to augment energy security in the country. India
provides significant opportunities, especially in the upstream and LNG
segments. State-owned companies are likely to forge partnerships with
foreign companies to carry out E&P activities, especially in deepwater
blocks, and to increase production from maturing domestic fields. At the
same time, outbound deals are likely to increase as Indian companies step
up plans to acquire oil and gas assets abroad.
oMiddle East transactions in value terms remained concentrated in
Kurdistan, with four of the five biggest deals concerning assets or
operations on the oil-rich region of Iraq. Overall, there were 45
transactions in the MENA region, an increase of 14% over 2011. The size of
transactions decreased with the average transaction size reducing from
US$3.6b to US$2.8b. Looking forward, we expect activity to continue based
on current trends with political uncertainty in North Africa continuing to
depress activity there.
oThe US's oil and gas transaction market experienced a softening in 2012
vs. modest deal activity in 2011, but still remained over 10% above
activity during the most recent oil and gas transaction cycle lows
experienced in late 2008 and 2009. Overall, deal values decreased 10% in
2012 vs. 2011, while volume decreased almost 15% over the same period. US
transactions still accounted for almost 40% of total global oil and gas
transactions values and volumes during 2012, down from approximately 50%
and 45% respectively, in 2011. The air of uncertainty looks set to remain
for the coming year.
Outlook in 2013
Brogan concludes: "2013 appears to face many of the same geopolitical and
economic uncertainties as 2012 and unfortunately these do not seem likely to
be fully resolved soon. However, in the absence of material shocks, we
currently expect the sector to continue to be resilient in M&A terms as the
key strategic drivers remain the same and participants have become accustomed
to making decisions in a highly uncertain environment.
"While capital availability is generally improving (especially debt), funding
will remain a challenge for smaller companies for both debt and equity, and we
continue to expect cash constraints coupled with cost escalation to be a
driver for both asset and corporate opportunities. Those at the larger end of
the scale with stronger balance sheets are likely to be the beneficiaries of
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