Midstream sector drives deal value in US Oil & Gas Industry during second quarter 2012, according to PwC US

Infrastructure deals around shale plays reaches $15.8 billion
Private equity interest continues at brisk pace
PE and MLPs make up 95% of conventional gas deal values

 

HOUSTON, TX July 26, 2012 – While mergers and acquisitions (M&A) deal value in the US oil and gas industry over the past two years had primarily been driven by shale transactions in the upstream sector, deals in the second quarter of 2012 evolved toward midstream deals, particularly gathering and processing targets, according to PwC US. Midstream deal value accounted for 55 percent of total deal value in the second quarter with $15.8 billion, an almost 200 percent increase when compared to the second quarter last year. Additionally, three of the five largest deals during the second quarter of this year were midstream deals.

For the three month period ending June 30, 2012, total deal value for transactions greater than $50 million reached $28.5 billion compared to $23.1 billion during the same period last year. Deal volume declined slightly to 50 oil and gas deals from the 55 deals during the second quarter of 2011. Average deal size also increased in the second quarter of this y, jumping 35 percent to $569 million from $421 million during the same period last year, driven by seven ‘mega’ deals (deals with values of $1 billion or more).

On a sequential basis, deal volume in the second quarter of 2012 increased significantly from the 33 deals in the first quarter, with total deal value also rising from $25.6 billion.

“The second quarter experienced a softening of oil prices and, combined with the continued lows of natural gas prices and the global economic uncertainty, many oil and gas companies started to pull back from new investments in the upstream sector,” said Rick Roberge, principal in PwC’s energy M&A practice. “However, dealmakers put their capital to work in the midstream sector where they focused on building out the infrastructure to transport, process and store the oil and natural gas extracted from shale plays they previously acquired. We believe that this infrastructure-related build-out will continue to be a focus for the remainder of 2012 and into 2013.”

For deals valued at over $50 million, there were 14 midstream deals in the second quarter of 2012. Upstream deals made up 58 percent of activity with 29 transactions, but only accounted for $9.3 billion of total deal value. According to PwC, upstream deals skewed toward oil-focused targets instead of gas-focused ones, with 12 oil deals compared to four gas deals – a historical high over the last 10 quarters that was likely driven by the differences in commodity prices.

In addition, four downstream deals contributed $2.2 billion in value, while oilfield services added three deals worth$1.2 billion.

There were 13 corporate transactions with values greater than $50 million during the second quarter of 2012, with a total deal value of $17 billion, or 60 percent of total second quarter value. Thirty-seven asset deals contributed $11.4 billion during the same time period. Both the number and total deal value of asset transactions declined from 40 deals representing $12.4 billion in the second quarter of 2011.

According to PwC, there were 16 deals with value greater than $50 million related to shale plays in the second quarter of 2012, totaling $7.5 billion of total deal value. Included in the shale-related deals in the second quarter of 2012 were two transactions involving the Marcellus Shale totaling $1.6 billion and one Utica Shale deal that contributed $194 million.

“Deal activity in both the Marcellus Shale and Utica Shale continued to tail off as a result of the persistent low price of natural gas,” said Steve Haffner, a Pittsburgh-based partner with PwC’s energy practice. “Over the past few quarters, shale assets were supported by strong pricing of natural gas liquids, but in the second quarter the market saw a drop in NGL pricing, impacting deal activity even further. Now the focus is on the midstream sector.” 

For deals valued at over $50 million, the volume of financial sponsor-backed transactions doubled during the second quarter of 2012 to 10 deals when compared to the same period last year. Private equity deals represented $5.7 billion in total deal value. PwC also notes that during the first half of 2012, master limited partnerships (MLPs) and private equity acquirers accounted for approximately 95 percent of conventional natural gas deal value.

“Private equity activity is expanding in all sectors of the energy industry as financial sponsors continue to look for entry points to position themselves to participate in the tremendous expected growth in the US energy space. They also have the ability to exercise the patience necessary to invest in the natural gas business at the bottom of the cycle – a luxury public companies do not have,” added Roberge. “They’ve also been active on the sell-side looking to monetize earlier investments, especially in the midstream and oilfield services space. Whether it’s financial sponsors exiting or corporates looking to divest certain non-core assets, sellers in this market need to be well-prepared and ready to provide deeper financial and operational details for a competitive buyer landscape that includes more private equity firms than ever.”

Foreign buyers announced three deals in the second quarter of 2012, which contributed $438 million, versus 11 deals valued at $6.4 billion during the same period last year.

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.

About the PwC US Energy Practice

We focus on customizing three things- assurance, tax and advisory services- to meet the unique challenges of energy companies. How we use the knowledge and experience we've gained from serving the largest and most complex energy companies to the entrepreneurial start-ups depends on our clients' goals and culture.  Taking the time to get to know our clients and listening to their needs lets us use our energy team-- of 3,100 people located around the world -- to create the value our clients want.

For more information about PwC’s Energy practice, visit: www.pwc.com/energy.

About the PwC Network

PwC firms help organizations and individuals create the value they’re looking for.  We’re a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services.  Tell us what matters to you and find out more by visiting us at www.pwc.com.

© 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.   This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

 

Scott Cianciulli / Danielle Pieri
Brainerd Communicators, Inc.
Tel: +1 (212) 986-6667
cianciulli@braincomm.com
pieri@braincomm.com