Energy price fluctuations present both near-term challenges
and interesting opportunities for the oil and gas mergers and
acquisitions (M&A) market. As Deloitte Consulting points
out in a recently released report, current depressed North
American natural gas prices (prices far below the market rates
in other continents) will likely continue to attract both
domestic and international supermajors that have money to spend
on natural gas assets at low prices. Deloitte believes the
long-term outlook for US natural gas holds promise, as gas
gradually gains domestic market share, and as prospects for LNG
exports from the US improve.
The consulting company sees buying interest and E&P
activity in liquids-rich shale plays continuing, as well as
midstream consolidation and infrastructure investment, as that
segment restructures and invests to serve the rapidly changing
North American energy landscape. According to Deloitte, a
resurgent North American energy market and the investment needs
that accompany that resurgence should set the stage for
sustained M&A activity over the longer term.
Only nine refining and marketing (R&M)
deals took place during the first half of 2012, compared to 12
transactions in the first half of 2011 and 13 during the second
half of 2011 (Fig. 1). However, the total value of transactions
picked up during this years first half to $10.6 billion,
up 36%, when compared to $7.8 billion in the first half of
2011, and several orders of magnitude larger than the $2.6
billion during the second half of 2011.
FIG. 1. Refining and marketing
by value and count.
We actually saw a good increase in deal value year
over year in this segment, said Roger Ihne, a principal
at Deloitte Consulting. This was primarily driven by two
large deals that took place outside the US: one in Asia and one
One refinery acquisition during this
period was notable not for its size but for the industry
affiliation of the buyer. A major international airline
announced in the second quarter of 2012 that it would buy a
Trainer, Pennsylvania, refinery for $180 million. The
company intends to upgrade the refinerys capabilities so that
it can produce a much higher proportion of jet fuel, giving the
airline a source of fuel in a region of the US that has very
little jet fuel production, as well as exchanges to allow jet
fuel to be supplied throughout other geographic areas.
This is certainly a unique situation that has everyone
intrigued both within and outside the industry, said Mr.
From integrated to independent.
Ownership within the R&M segment of the energy industry
has been transformed over the past decade as large integrated
companies have high-graded their portfolios,
selling or spinning off their downstream assets to focus on
higher-performing upstream operations. Now, over two-thirds of
US R&M operations are in the hands of independent rather
than integrated companies. Many of these independent operators
have benefited over the past two years from rising profits in
the US due to advantage-priced crude supplies from Canada and
the developing tight oil plays in America, but long-term
prospects are more uncertain.
Gasoline demand in the US is down 5% compared to last
year, said Mr. Ihne. Long-term demand for refined
products in the US is still uncertain due to stricter corporate
average fuel economy and renewable fuel standards, as well as
future competition from natural gas-based transportation
However, reduced domestic consumption of gasoline and
distillate fuels has largely been offset by exports of refined
products from US Gulf Coast refiners to Mexico, South America
and Northern Europe. Fig. 2 provides an overview
of the net exports of US petroleum products from January 2010
to May 2012.
FIG. 2. Net exports of
US petroleum products.
Without export demand, US refiners would likely be
challenged to operate near the 85%-plus capacity they reached
this year, and could instead be facing increased
rationalization of exiting capacity, said Mr. Ihne.
The cloudy regulatory and competitive landscape creates an
uncertain environment for many of the newly
independent players in this segment.
Refiners now have varying degrees of balance sheet
strength, said Trevear Thomas, another Deloitte
Consulting analyst. The question is whether that is
sustainable long-term, or whether that situation will lead to
A crucial issue for refiners located along the Gulf Coast is
whether the Keystone pipeline project will be allowed to move
forward. Many of the refineries in this region are designed to
process heavy, high-sulfur crude oil.
Refining assets in the Gulf are some
of the most sophisticated in the world, said Mr. Ihne.
They can process heavy crude from Canada and the new
tight oil supplied from various US plays, but unless refiners
gain access to that oil, we will have assets in the US that
have a comparative economic advantage to the rest of the
worldbut, nonetheless will have to rely on higher cost
imported crude from elsewhere.