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US oil, gas M&A activity led by foreign buyers, private equity groups

10.31.2013  | 

Foreign buyers announced nine deals in the third quarter of 2013, which contributed $2.8 billion or 17% of total deal value, vs. four deals valued at $4 billion during the same period last year. On a sequential basis from the second quarter, the number of total deals increased 800% from just one foreign deal.

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Divestures continues to drive deal activity in the US oil and gas sector, as foreign buyers and private equity (PE) players returned to the table as buyers of energy assets during the third quarter of 2013.

This activity is driving the bulk of merger & acquisition (M&A) activity in the sector, according to PwC’s third-quarter M&A analysis for the oil and gas sector, which was released on Thursday.

While divestiture activity contributed 36 total transactions, representing 84% of total deal volume, a significant decline in midstream M&A activity coupled with a lack of mega deals resulted in a decline in deal value for the third quarter of 2013 as compared to the same time in 2012.

For the three-month period ended September 30, there were a total of 43 oil and gas deals with values exceeding $50 million, accounting for $16.4 billion. It is a slight decrease from the 45 deals worth $37.6 billion in the third quarter of 2012.

On a sequential basis, deal volume in the third quarter dropped by 9% compared to the second quarter of 2013, with deal value falling by 46% during the same time period. Divestiture deals accounted for $13.9 billion in total value.

“After a brief pause in the second quarter, foreign buyers and PE players came back to the deal table in the third quarter looking for attractive assets to add to their portfolios,” said Doug Meier, PwC’s US energy sector deals leader.

“Divestitures continue to drive deal activity,” he continued. “Acquirers continue to insist on performing broader and deeper diligence to get the right deal done at the right price. As a result, we continue to see increased demand for our divestiture services as sellers spend more time performing their own diligence on the assets to be divested before beginning the marketing process.

“While deal value declined, activity remains robust, including in the shale plays and with master limited partnerships (MLPs) - and PwC expects that to continue through the remainder of the year.”

Foreign buyers announced nine deals in the third quarter of 2013, which contributed $2.8 billion or 17% of total deal value, vs. four deals valued at $4 billion during the same period last year. On a sequential basis, the number of total deals increased 800% from just one foreign deal.

For deals valued at over $50 million in the third quarter, upstream deals accounted for 26 transactions, representing 61% of total deal volume totaling $11.2 billion. Additionally, there were four midstream deals, accounting for 9% of total deal volume in the quarter worth a total of $1.3 billion. There were 10 oilfield services deals worth $3 billion, and three downstream deals added $886 million.

Shale deals were also a major driver of deal activity in the third quarter, as 17 shale deals contributed $5.4 billion, or 33% of total deal value. In the upstream sector, shale deals represented 15 transactions and accounted for $5 billion, while the midstream sector saw no shale deal activity.

The most active shale plays for deals with values greater than $50 million during the third quarter include the Eagle Ford in Texas with seven total transactions contributing $1.7 billion, the Bakken in North Dakota with three deals totaling $1.8 billion, followed by the Utica with two deals adding $284 million.

Financial investors’ deal activity also returned in the oil and gas industry with six total transactions, representing $4.9 billion, or 30% of total deal value during the third quarter of 2013, compared to four deals, accounting for $1.5 billion, or 5% of total deal value in the second quarter of 2013.

“Financial investors continue to focus on exploration and production (E&P) opportunities but stepped into three oilfield service transactions in the third quarter,” said Rob McCeney, PwC’s US energy private equity deals leader. “Financial investors also accounted for one mega E&P transaction in the third quarter and continue to seek orphan businesses from corporate sellers.”

PwC noted that in the third quarter of 2013, MLPs were involved in 11 transactions, representing 26% of total deal activity. Overall, MLPs have generated 34% of total deal activity for the first three quarters of 2013. Of those 11 deals, four were upstream MLPs, or 36% of total MLP activity in the third quarter.

“MLPs, including those focused on the upstream space, are continuing to have a strong presence in the deal market -- and PwC expects this to continue,” said Meier. “MLPs use deals to grow distributions to unit holders, and they’re taking advantage of the attractive debt and equity markets to finance these deals."



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