Focus on Maximizing Shareholder Value Through Portfolio Optimization Expected to Remain at the Forefront of Deal Strategies for Oil & Gas M&A Activity in 2014
Continued Interest in Shale Plays Comprises 57% of Total Deal Value in Fourth Quarter
HOUSTON, TX, January 28, 2014 – Accelerated merger and acquisition (M&A) activity in the U.S. oil and gas industry throughout 2013, which included a strong uptick in the last three months of the year, led to 182 total deals accounting for $115.9 billion in total deal value for the year. As companies continue concentrating on sustaining growth and maximizing shareholder value, PwC expects continued interest in M&A activity in the sector throughout 2014.
During the final three months of 2013, there were a total of 51 oil and gas deals with values greater than $50 million accounting for $41.7 billion, a 154 percent increase in deal value from the 43 deals worth $16.4 billion in the third quarter of 2013. Deal volume in the fourth quarter dropped by 36 percent compared to the fourth quarter of 2012, with deal value falling 29 percent during the same time period. According to PwC, this drop-off in total deal volume and value in the most recent quarter versus the prior year can be attributed to the fact that fourth quarter 2012 deal activity was strongly influenced by pending changes in the U.S. tax law. Overall deal volume for 2013 decreased from the 212 deals worth $152.8 billion in 2012.
For deals valued at over $50 million, asset transactions continued to dominate total M&A deal volume during Q4 2013 with 42 deals representing 82 percent of total deal volume. Deal value for asset transactions reached $22.7 billion, or 54 percent of total deal value for the fourth quarter of 2013. For all of 2013, there were 154 asset deals worth $77.5 billion. Corporate transactions represented nine deals totaling $19.0 billion in the fourth quarter of 2013. For the full year of 2013, there were 28 corporate transactions that contributed $38.4 billion.
“During 2013, oil and gas companies focused on maximizing shareholder returns. This focus resulted in increasing dividends and share buybacks. Companies increasingly utilized divestitures of non-core assets to fund these cash returns to shareholders,” said Doug Meier, PwC’s US energy sector deals leader. “Overall, M&A activity has been robust for a number of years in oil and gas. We see that continuing as companies in the space focus on portfolio optimization – further investing in those assets that are generating strong returns and divesting those assets that are generating lower returns. We’re spending a lot of time helping our clients explore and execute on a range of transactions. Additionally, we’re also working with companies to drive operational efficiencies, synergy realization and improve enterprise-wide processes.”
According to PwC, there were 27 deals with values greater than $50 million related to shale plays in the fourth quarter of 2013, totaling $23.8 billion. This represents a 338 percent increase in total deal value compared to the third quarter of 2013.
For all of 2013, there were 79 shale deals that contributed $53.2 billion, an uptick of two deals when compared to full year 2012. Total value for shale deals during the year also increased from $51.7 billion in 2012.
On a sequential basis, upstream and midstream shale deal value and volume increased. There were 19 total upstream shale deals representing $11.0 billion, compared to 15 total deals worth $5.0 billion in the third quarter of 2013. Midstream shale-related deals totaled eight for the fourth quarter of 2013, representing $12.8 billion, whereas the previous quarter lacked shale M&A activity in the midstream space.
“In the fourth quarter of 2013, shale deal activity increased along with broader conventional industry activity, especially in the Marcellus Shale,” said John Brady, a Houston-based partner with PwC’s energy practice. “That basin bounced back in the quarter, as stronger performance per well has reinvigorated returns, driving additional interest in acreage in the Northeast. If shale plays continue to adapt more efficient production processes to optimize the play and improve returns, activity in unconventionals will continue to be robust.”
The most active shale plays for M&A with values greater than $50 million during the fourth quarter of 2013 include the Eagle Ford in Texas, which had five deals with a total value of $6.5 billion, followed by the Marcellus Shale with four deals representing $1.1 billion. The Niobrara contributed two deals worth $1.2 billion and the Utica Shale also contributed two deals totaling$263 million.
Upstream deals accounted for 59 percent of activity in the fourth quarter of 2013 with 30 transactions, representing $19.8 billion, or 47 percent of total fourth quarter deal value. The number of oil deals within the upstream sector totaled 10, compared to four gas deals in the quarter. There were nine midstream deals that contributed $14.1 billion, a 994 percent increase in deal value from the third quarter of 2013. Seven downstream deals during the fourth quarter of 2013 added $4.0 billion, while oilfield services contributed five deals worth $3.7 billion.
During 2013, master limited partnerships (MLPs) were involved in 54 transactions, representing about 30 percent of total 2013 deal activity, consistent with recent historical levels.
“MLPs remain attractive investment vehicles because of their strong yields and efficient tax structures,” added Meier. “However, the pressures on MLPs to keep cash flows high and bring in new assets will keep these operators on the lookout for more acquisitions, including new drop downs in the midstream space.”
Financial investors continued to show interest in deal activity in the oil and gas industry with 11 total transactions, representing $10.6 billion during the fourth quarter of 2013 - a 48 percent jump in deal value compared to the fourth quarter of 2012.
“Increased activity by financial investors illustrates the continued interest in the energy sector. Sellers outweighed buyers, particularly in the E&P sector with robust transaction values. Financial investor buyers added more midstream and oilfield services as corporate owners refocus on core operations,” added Rob McCeney, PwC U.S. energy & infrastructure deals partner.
PwC notes that during the fourth quarter of 2013, there were eight mega deals, representing $26.4 billion, compared to three mega deals worth $6.4 billion in the third quarter of 2013. Also, foreign buyers announced four deals in the fourth quarter of 2013, which contributed $541 million, versus ten deals valued at $3.4 billion during the same period last year.
PwC’s Oil & Gas M&A analysis is a quarterly report of announced U.S. transactions with value greater than $50 million analyzed by PwC using transaction data from IHS Herold.
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