Record Cash Flows and Mix of Players Fuel Oil and Gas Deal Activity

Открыть страницу: на русском языке

16 April 2007 — Record cash flows have pushed deal activity in the oil and gas industry to levels rivalling the mega merger highs of 1998. ‘O&G Deals’ the first annual analysis by PricewaterhouseCoopers of M&A activity in the oil and gas sector, reports that average deal value in the sector rose 18% in 2006 pushing the aggregate M&A total to US$291bn, up US$41bn some 16% on the previous year.

Gas deals dominated the list of the largest transactions in 2006, with six out of the eight upstream deals in the top ten deal list. This was in contrast to the previous year when only two deals in the top ten of all deals and four of the top ten of upstream deals were gas dominated.

Unlike in the past, it is not the majors that are fuelling much of the deal momentum. Instead, the report points to four key drivers of deal activity:

Accelerated consolidation among mid-size companies — mid-size deals accounted for half of the total increase in deal value. Consolidation in this part of the market is running apace. 2006 saw a big 59% leap in mid-size deal numbers and a 61% in total mid-size deal values which jumped from US$36.3bn in 2005 to US$58.3bn in 2006.
The ascendancy of the NOCs (national oil companies) — the rise of NOCs from Russia, China and India continues. In the case of the latter two countries this is demonstrated by expansionist activity abroad, for example CNOOC’s US$5bn deal to develop Iran's northern Pars gas field. In the case of Russian NOCs, principally Gazprom, expansionist intent abroad is combined with a strengthened hold on upstream assets at home, highlighted by the US$7.5bn deal to gain majority control of the massive Sakhalin 2 project.
A boom in oil services activity — worldwide shortages of personnel and equipment is spurring deal activity in the services sector. Indeed, in 2006, there were no fewer than six US$1bn plus deals in this segment of the industry compared to just two in 2005. Total service company deal values leapt 132%, from US$5.6bn in 2005 to US$12bn in 2006.
The appetite of private equity — private equity players, leveraged buyout funds and hedge funds have begun to move into the oil and gas sector in a significant way, armed with big investment cash piles and spurred by the opportunities presented by an era of higher prices.

The rise of private equity players and consolidation at the top of the midsize energy market characterised the table-topping deals of 2006. Kinder Morgan’s management and private equity buy-out and Statoil’s purchase of Norsk Hydro’s oil and gas division each provided US$32bn in evidence of these two deal forces at work.

Rick Roberge, US energy transaction services leader, PricewaterhouseCoopers said:

“The mix of players and forces at work mean the market for deal activity is now more broadly based. In the period ahead, we are likely to see continued momentum in oil and gas deal activity. The pressure to replace reserves and the structural rationale for consolidation will remain. It is clear that consolidation has a long way to run in the independent and mid-size sector of the market, particularly in North America. At the same time, the NOCs and private equity players will be key drivers of deal activity both in the mid-tier and at the top end of the market.”

Momentum will also continue to come from the oil and gas services sector which looks set to remain buoyant. Oil service companies have experienced recent high profit and share price growth and further consolidation can be expected as these companies continue to pursue acquisition-led growth.

The report also includes a focus on each of the key regional markets:

Russia and the former Soviet Union countries

Deal levels remained at significant levels in Russia and neighbouring FSU countries, totalling US$30.1bn in 2006. There was an upswing in the number of deals valued at US$1bn or above with eleven such deals announced in 2006 compared to four the previous year.

There is likely to be continued Russian IPO activity in London. On the downstream side in Russia there will be the need for considerable investment in Russian downstream refining assets. However, the timing of this is unclear and will depend on uncertain future domestic demand and the extent to which the oil price continues to make it more favourable to export crude rather than products.

Michael Knoll, Head of M&A Lead Advisory / Corporate Finance in PricewaterhouseCoopers, Russia comments:

“The oil & gas industry remains one of the key sectors in terms of M&A activity in Russia. M&A activity reflects continued sector consolidation mostly driven by Russian corporates. At the same time, Russian companies seek to develop their business reach abroad by acquiring foreign companies as well as assets. We expect that this trend will continue for some time”.

North America

The total value of oil and gas deal activity in North America leapt by 40%, from US$118bn in 2005 to US$164.7bn in 2006. The total number of deals remained the same but the number of large deals, worth US$1bn or above, increased from 21 to 32.

With companies facing growing competition on the international scene, 2006 saw renewed interest in hitherto more marginal oil and gas reserves, in particular the Canadian oil sands. Rather than sink additional money into high-growth, but politically risky, areas, some oil majors are directing more attention to US small-majors and the Canadian oil sands, where reserves can be acquired with less risk, but at a higher price.

Europe

Deal totals in Europe remained buoyant. The aggregate total was given a huge boost by Statoil/Norsk Hydro’s US$32.2bn upstream merger as well as a US$3.6bn surge in the value of oil field service deals. Excluding the effect of the Statoil/Norsk Hydro deal and its counterpart highest deal in 2005, the average value of the remainder of the European deals rose 22%, from US$137m to US$167m. By far the biggest increase came in the oilfield services sector where the average deal size more than doubled, from US$109m to US$269m.

Michael Hurley, UK oil & gas advisory leader, PricewaterhouseCoopers LLP, said:

“No fewer than eight of the top twenty European deals in 2006 involved oilfield equipment companies. Not surprisingly, the largest deals involve rig companies. As companies increase in size and internationalise, they are taking their deep water expertise to geographies which are experiencing more active exploration activity than the maturing North Sea.”

Asia Pacific

2006 deal totals fell far short of their 2005 highs in the Asia Pacific region. However the overall figures mask some significant exceptions, notably activity in China, Australia and in oil field services.

Competition for assets has been fierce in the Australian oil and gas M&A market as the country benefits from a favourable geopolitical climate for investment and expansion. At least seven deals in Australia involved coal bed methane gas. Economic, technological, environmental and supply factors have led to coal seam gas (CSG) enjoying something of a bull market. It now accounts for around 15% of eastern Australia gas supply and some forecasters say that volumes may triple by 2012.

Notes to Editor:

A copy of ‘O&G Deals’ can be downloaded from our website.
The Transaction Services group of PricewaterhouseCoopers offers a deal process that helps clients bid smarter, close faster, and realize profits sooner on mergers, acquisitions, sales and financing transactions. Dedicated deal teams operate from 16 U.S. cities and some 90 locations in North America, Latin America, Europe and Asia.
For additional comments please contact Vera Totskaya, PR Senior Manager.

“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.