Oil and gas deals follow oil price over the cliff says PricewaterhouseCoopers report

London, 20 FEB 2009 - Deal value reduced progressively throughout 2008 before following the oil price over the cliff in the final quarter as the financial crisis intensified and economic conditions deteriorated. Companies slammed on the breaks in the final quarter with total oil and gas deal value down 59% on 2007 levels and 72% compared with the final quarter high of 2006.

Rick Roberge, US Energy Transactions partner who oversees PricewaterhouseCoopers' annual O&G Deals analysis comments: “Even prior to the economic crisis and oil price plunge, big deals were in retreat. There were only two deals that topped the US$5bn mark in 2008 compared with ten such deals in 2007. The hiatus in big deals was especially evident in the oilfield sector.”

Six of the top ten 2008 oil and gas deals were purchases of natural gas assets. Five of the six were ‘unconventional’ resources that require considerable technological investment. All of them were in Australia and North America reflecting the attraction of targets in stable locations close to end markets as companies responded to security of supply constraints.

Rick Roberge, US energy transaction services partner, PricewaterhouseCoopers said: “The rush to develop Australian coal bed methane gas assets for LNG export helped catapult Australia’s share of worldwide oil and gas deal value up tenfold. Upstream deal value in Australia multiplied from US$1.7bn in 2007 to US$16.6bn in 2008.”

The immediate outlook for oil and gas deal-making is the early part of 2009 is bleak. However, while deal activity in the first half of the year looks set to remain subdued, it is difficult to see stronger players remaining on the sidelines for the whole of 2009 given the opportunities for acquisitions at low valuations.

Michael Hurley, global energy, utilities and mining advisory leader, PricewaterhouseCoopers says: “For the likes of Chinese companies, the current market offers unrivalled opportunities to gain access which, in other circumstances, would be denied to them. Similarly, sovereign wealth funds and many private equity investors will be watching the sector closely.”

Deal makers
The biggest deals were two table-topping US$5.8bn gas deals – ConocoPhillips’ investment in Origin Energy’s coal seam methane gas assets and Royal Dutch Shell’s agreed offer for Canadian company Duvernay.

Deal places
Deal numbers were up in all territories with the exception of the dominant North American market and the Russian Federation. The pace of deal-making slowed everywhere during the year as financial and market conditions deteriorated. Deal activity was subdued in the Russian Federation with numbers down to 33 from 41.

Rick Roberge, US energy transaction services partner, PricewaterhouseCoopers said: “The fall in North America oil and gas deal volume accelerated sharply in 2008. Total deal value fell 43% from US$129.7bn in 2007 to US$73.6bn in 2008. Deal numbers were down by 8%.”

Activity in Europe was relatively resilient compared to the big fall in volume elsewhere. Deal numbers rose 64% from 77 to 126 and the total deal value was down 15% compared to a 38% drop worldwide.

Deal value in the Asia Pacific region shot up by 73% from US$13.2bn in 2007 to US$22.7bn in 2008. This dramatic rise in volume was driven by deals to acquire Australian gas assets.

The immediate outlook for oil and gas deal-making is subdued. Constrained debt markets, depressed equity prices and commodity prices looks set to stall significant deal-making in the early part o f2009. An opening of the equity markets will be followed by the debt markets which will allow financing to become available.

Report methodology:
O&G Deals includes analysis of all global cross-border and domestic oil and gas deal activity. It is based on published transactions from John S. Herold, Inc. ‘M&A database’, December 2008. Analysis encompasses announced deals, including those pending financial and legal closure and those which are completed. Deal values are the consideration value announced or reported including any assumption of debt and liabilities. Figures relate to actual stake purchased and are not multiplied up to 100%. The geographical split of the deals refers to the location of the asset. The sector and subsectors analysed include: Downstream: gasoline service stations, petrochemical, propane distribution, refining, retailing/marketing - misc., terminals/storages; Midstream: gas gathering/processing, pipelines - gas, pipeline - liquids, tankers/other transportation; Oilfield Equipment Services: diversified, drillers/drilling rigs, geophysical/reservoir services, manufacturers, miscellaneous, offshore services/vessels, production/well Services, tool rental/drilling services; Upstream: acreage, reserves. A full list of transactions throughout 2008 is available by visiting the O&G Deals swebsite at www.pwc.com/ogdeals .  

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