2011 US Oil & Gas deals highlighted by shale plays, foreign investment, and robust private equity interest as total deal value increases 35%, according to PwC US

Transaction value for shale plays jumps 55% in 2011
Foreign buyers contribute over $56 billion in deal value
Financial sponsors’ investment in the sector grows to over $13 billion


HOUSTON, TX February 8, 2012 – The total value of US oil and gas mergers and acquisitions (M&A) increased significantly in 2011 due to continued investment in US shale plays and related infrastructure, sustained interest from foreign buyers, and private equity entrants deploying capital in the energy industry, according to an analysis of energy M&A data by PwC US. A major trend in the energy sector driving the increase in deal value throughout the year was a shift towards more investments in oil and liquid plays as natural gas prices remained depressed amid hitting a 10-year low in 2011.

In 2011, there were 191 deals with values greater than $50 million, accounting for $186.5 billion, a significant jump in total deal value from the $138.5 billion during 2010, which had five more announced deals. Average deal size also increased in 2011 to $977 million, a 38 percent increase from $706 million in 2010, driven by 32 ‘mega’ deals (deals with values of $1 billion or more).

“M&A activity in the US oil and gas sector was extremely active in 2011 as shale plays continued to attract the large multinational energy companies, foreign buyers, and private equity firms,” said Rick Roberge, principal in PwC’s energy M&A practice. “New drilling techniques in hydraulic fracturing are uncovering vast amounts of crude oil and natural gas in a very accessible environment to oil and gas reserves and this is what is contributing to the huge interest in shale plays. The low price of natural gas, partially due to the increase in supply, has also driven a shift toward more oil and liquid plays as companies and investors look to take advantage of oil prices, which is holding steady at $100 a barrel. We expect deal flow to remain active in 2012, despite continuing economic uncertainty, due to attractive commodity prices – which promotes exploration and development as well as upstream M&A activity.”

The final three months of 2011 had a total of 48 deals (with values over $50 million) worth $80.5 billion, representing a 25 percent decline in volume but an 89 percent increase in total deal value from the 64 deals valued at $42.6 billion during the fourth quarter of 2010.

There were 11 corporate transactions with values greater than $50 million, generating 72 percent, or $58 billion, of total fourth quarter deal value – a 350 percent increase in total deal value over the same period last year. Thirty-seven asset deals with values greater than $50 million contributed $22.5 billion, compared to 51 asset deals with a combined value of $29.7 billion seen during the fourth quarter of 2010.

Although upstream deals made up the majority of activity in the fourth quarter of 2011 with 23 transactions, or 48 percent of total deal volume, accounting for $24 billion in transactions, midstream deals represented 60 percent of total deal value with $48 billion and 12 transactions. Oilfield equipment followed in deal activity and volume with 8 transactions totaling $4.5 billion, while downstream deals contributed $4.1 billion with five deals.

There were 17 shale-related deals in the fourth quarter of 2011 with a total deal value of $57 billion, compared to 32 shale-related deals representing $29.3 billion during the final three months of 2010. Average deal value in the fourth quarter increased 209 percent to $3.4 billion for shale deals. In all of 2011, there were 68 total shale-related deals, with values greater than $50 million – a decline from the 85 shale-related deals in all of 2010. But the total value of shale deals in 2011 jumped 55 percent to $107 billion from $68.9 billion in 2010.

In the upstream sector, shale deals represented 51 percent of total upstream deal value in the fourth quarter of 2011, accounting for 11 deals with a total value of $12.3 billion. For full-year 2011, there were 55 shale deals in the upstream sector that totaled $59.6 billion, or 81 percent of total upstream deal value.

Included in all the shale-related deals in the fourth quarter of 2011 were four transactions involving the Marcellus Shale totaling $3.5 billion and three Utica Shale deals with a total value of $3.6 billion. For full-year 2011, there were a total of 13 deals in the Marcellus Shale worth $9.9 billion, compared to 22 deals that totaled $20.3 billion during 2010. The Utica Shale had seven transactions that represented $6.7 billion in 2011, a jump from one deal in all of 2010, with a value of $178 million.

“The industry continued to make a paradigm shift to shale in 2011 with virtually every major oil and gas company taking a position in unconventional plays,” said Steve Haffner, a Pittsburgh-based partner with PwC’s energy practice. “Activity in the Marcellus Shale remained strong for patient buyers waiting out the supply-demand dynamics of natural gas. Towards the end of last year, we saw many investors looking at the Utica shale as the next area of interest to take advantage of the more liquids-rich resource, and its proximity to major metropolitan areas. Companies are now focused on building the related infrastructure to transport the extracted oil and gas, which we believe will likely be a key driver of M&A activity in 2012.”

Foreign buyers announced 10 deals during the fourth quarter of 2011 that had a value greater than $50 million, two fewer deals when compared to the last three months of 2010. Total deal value, however, increased in the fourth quarter of 2011 to $13.9 billion from $9.4 billion during the same time period in 2010. For full year 2011, there were 40 transactions by foreign buyers, five less than full year 2010, but total deal value in 2011 jumped 55 percent to $56.4 billion.

Additionally, the total value of the five financial sponsor-backed transactions over $50 million increased dramatically in the fourth quarter of 2011, representing $8.8 billion, compared to a total deal value of $353 million during fourth quarter 2010, which had three deals. For all of 2011, there were 10 deals that involved financial sponsors, one less than in 2010 – although total deal value skyrocketed to $13.2 billion in 2011 from $3.1 billion in 2010.

“International players invested heavily in US shale plays through joint ventures in 2011 – and we believe a trend to watch out for in 2012 is for foreign buyers to look to acquire entire companies that operate in shale plays so they can take more control of the assets through operatorship,” added Roberge. “We also saw major private equity firms making big bets in the energy industry in 2011 and we expect their activity may accelerate as favorable oil price outlooks provide an attractive investment rationale. As deals continue in 2012, corporates and PE firms should consider focusing on maximizing the assets they acquire and ensuring they have the right deal strategies, integration plans, and controls in place to successfully navigate this evolving and complex landscape.”

PwC’s Oil & Gas M&A analysis is a quarterly report of announced US transactions with value greater than $50 million analyzed by PwC using transaction data from IHS Herold.

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