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Evaluate Energy is a London based Oil and Gas consultancy and software firm. Its product is used by the world's leading energy corporations and their advisors as a prime source of strategic, financial and operating analysis of company and industry performance. It's unique software gives clients... More
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  • Thoughts on Oil & Gas M&A in 2011
     As the dust settles on an active year for mergers and acquisitions in the global Oil & Gas E&P sector, Evaluate Energy has looked forwards, towards what kind of trends may develop in the sector during 2011.

    • With only a modest growth in gas prices predicted, gas weighted assets are likely continue to change hands in the US at large discounts to equivalent liquids assets during 2011.
    • Smaller gas focused companies in the US may have to consolidate or risk being acquired by their larger peers who can afford to take a longer view on gas price projections
    • Shale plays in Europe may start to attract larger investments if resources are proved to be abundant and economic (although this prediction could be one year too early)
    • Oil sands M&A has been quiet in recent years since the credit crisis and consequent drop in the oil price, this sector may be revived if the oil price continues to trade at current levels
    • Indian NOC’s will start to expand further overseas following the country’s sustained economic growth which has driven up the country’s demand for oil.
    • Foreign oil acquisitions from Chinese companies is likely to continue as the country looks to further secure long term oil security
    • Other M&A hotspots are likely to develop over the year where and when positive exploration results from new frontier areas come through, i.e. Greenland, Falklands, undeveloped African countries and new or extensions to US and Canadian plays such as the Alberta Bakken 


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jan 06 7:42 AM | Link | Comment!
  • Third Quarter Oil and Gas Deals Soar to $85 Billion on Back of Colossal Petrobras Offering
     The value of global oil & gas deals reached $85 billion during Q3 2010, driven by the massive $42.5 billion deal between Petrobras and the government of Brazil and strategic reorganisations of assets by super-majors including BP and ConocoPhillips. That’s according to Evaluate Energy’s Global M&A database which tracks all global oil and gas deals on a daily basis. Excluding the Petrobras deal, total deal value in the exploration and production sector is still slightly higher than the previous two quarters and far in excess of total deal value in Q3 2009, when the credit crunch was still significantly affecting commodity prices and access to finance.

     

    Richard Krijgsman CEO at Evaluate Energy commented, “Last quarter, we saw the biggest volume of exploration and production deals ever. We are seeing major structural shifts in the market as publically quoted and national oil companies vie for reserves, and the M&A market is simply reflecting this trend.”

     

     

    Deepwater Resource Lures Brazilian Investment

     

    In September, Petrobras and the government of Brazil reached an agreement in which Petrobras transferred $42.5 billion of stock in exchange for the rights to 5 billion barrels of oil reserves in deepwater areas offshore Brazil. As a result of the share issue, the Brazilian government gained an increase in voting stock ownership of Petrobras from 57.5% to 64%. Additionally Petrobras has so far raised a further $27.5 billion via a share issue, with the funds earmarked for the high development costs associated with the deepwater assets. Including the shares transferred as part the deal with the government the $70 billion share issue by Petrobras was the largest ever share issue.

     

    With Sinopec last week negotiating a deal to take a 40% stake in Repsol Brazil for $7.1 billion, the total value of deals for Brazilian deepwater assets rose to $56 billion for 2010, representing 32% of global deal value. Repsol Brasil owns interests in a number of early development deepwater Brazilian fields, including a shared interest in Guara, which forms part of the deal between Petrobras and the Government of Brazil.

     

    Interest in US Shale Gas Sector Loses Momentum

     

    In Q3 2010 with the Henry Hub benchmark gas price dropping steadily to end below $4, total shale deals came in at just $5.8 billion for the quarter with the majority of this value coming from Canadian shale gas plays. A flurry of activity in the shale gas sector produced £21 billion of deals in the first six months of 2010 as numerous companies across the world clambered to get on board the hottest resource of the year. With much of the shale assets in the US held by small-cap independent companies who lack the deep pockets of the majors, an extended period of low US gas prices may put pressure on the industry to move towards further consolidation.

     

    In contrast to the poor gas prices, the WTI oil price benchmark has remained above $75 in four successive quarters. “In the US, companies have shifted their focus to assets weighted towards oil in the past few months and this has led to a resurgence in Permian basin deals during the quarter” according to Evaluate Energy lead M&A analyst Eoin Coyne. Total deal value in the basin reached $5.4 billion.

     

    Cairn Cashes in on Indian Subsidiary to Gamble on Greenland Assets

     

    The largest deal involving non-state owned companies came from the divestment by Cairn Energy of a 51% interest in Cairn India for US$8.5 billion, to Indian mining company, Vedanta Resources. The divestment by Cairn is part of their strategy to raise funds to explore the high cost exploration assets that Cairn holds in Greenland. The speculation surrounding the potential of resources in Greenland ranges from possibly being the largest untapped reservoir of oil & gas in the world, to a country that will not produce commercially due to steep costs and restrictive weather conditions. With only six exploration wells previously drilled in the region all returning dry the strategy at first glance appears risky. Technology has come a long way however since the last bout of drilling in the region in the 1970s and Cairn have built a formidable reputation for successful exploration campaigns in areas overlooked by their peers.

     

    KNOC Closes Successful Pursuit of Dana Petroleum

     

    Korea National Oil Corp dipped into their $6.5 billion acquisition war chest during the quarter. A fund which the South Korean government granted to the company with the mandate of reaching a reserve base of 2 billion boe, and a production rate of 300,000 boe/d.  KNOC gained 50,000 boe/d of this target when they acquired Dana Petroleum for $2.9 billion in an all cash deal during the quarter. With the initial bid rejected by the Dana board an offer of £18 per share representing a 59% premium on the Dana Petroleum share price proved sufficient to entice the shareholders to agree to the offer, despite the recommendation of the Dana boardroom.

     

    BP and ConocoPhillips Continue Asset Divestiture Programs

     

    Asset sale programs by BP and ConocoPhillips contributed $15 billion to the total value during the quarter, with BP keen to raise funds for the Horizon oil leak payouts and ConocoPhillips looking to improve their balance sheet. BP’s divestitures of E&P assets totalled $8.9 billion and included assets in Canada, Colombia, Egypt and the United States. An additional $21 billion of sales are planned which will bring BP’s divestitures to their target level of $30 billion. The main beneficiary of BP’s asset sell-off so far has been Apache Corp. who acquired assets in Canada, United States and Egypt for $7 billion during the quarter. Including deals to acquire Devon’s Gulf of Mexico shelf assets and Mariner Energy, Apache has now negotiated $11.9 billion worth of deals during 2010. Eoin Coyne from Evaluate Energy comments “Apache has its work cut out as these deals are equivalent to more than a third of the company’s market capitalisation. What’s more they encompass a wide variety of geographical locations making integration a potential challenge.”

     

    ConocoPhillips’ divestiture strategy is to raise $10 billion to reduce debt and fund share repurchases. A large portion of this total has already been reached through the divestiture of the company’s Syncrude stake to Sinopec. In addition to the planned $10 billion of sales ConocoPhillips reduced their stake in Lukoil from 19.2% to 6.6% during Q3 2010 for $5.8 billion. ConocoPhillips report that the sale is a strategic move due to insufficient returns on their investment and the lack of additional business opportunities arising in Russia during the six years in which ConocoPhillips held a significant stake in the company.

    Top 10 Deals of the Quarter

     

    Acquirer

    Target Company

    Country

    Total Acquisition Cost ($ 000)

    Cost per boe/d of Production ($)

    Cost per boe of 1P Reserves ($)

    Petrobras

    Government of Brazil

    Brazil

    42,533,000

    -

    -

    Vedanta Resources plc

    Cairn India

    India

    8,480,049

    133,020*

    -

    Lukoil

    Lukoil

    Russia

    3,442,012

    19,887

    2.59

    Apache Corp.

    BP

    Canada

    3,250,000

    69,849

    14.51

    Apache Corp.

    BP

    United States

    3,100,000

    108,354*

    21.99

    Korea National Oil Corp

    Dana Petroleum

    United Kingdom

    2,921,283

    58,986

    -

    Lukoil

    Lukoil

    Russia

    2,380,000

    21,351

    2.72

    KazMunaiGas E&P

    Kazakhoil Aktobe LLP, Kazakturkmunai Ltd and Mangistau Investments B.V.

    Kazakhstan

    2,249,000

    35,904

    -

    Concho Resources

    Marbob Energy

    United States

    1,508,619

    107,759*

    19.85

    Total

    UTS Energy Corp

    Canada

    1,104,097

    -

    -

     

    * Relatively high cost due to a significant proportion of the acquired assets still in development




    Disclosure: No Holdings
    Oct 07 11:59 AM | Link | Comment!
  • Second Quarter Oil & Gas Deals Top $42 Billion as Companies Pile into Shale Gas
     The pace of M&A activity in the global E&P sector sustained the momentum of the first quarter with $42 billion of E&P deals announced in the second quarter of 2010. Evaluate Energy only includes officially announced deals in its analysis and excludes rumoured deals.

     

    US Shale Gas Attracts Global Attention

    The total value for the quarter is the second largest in the past three years (the biggest being Q4 2009, a quarter dominated by ExxonMobil’s $41 billion acquisition of XTO Energy) and has been strongly driven by increasing interest in the US shale sector from domestic and international companies alike. In total $12 billion worth of US shale gas deals were announced which represented over one quarter of global E&P deals.

    The shale gas sector accounted for the largest deal announced during the quarter with Royal Dutch Shell making their initial foray into the sector with its giant $4.7 billion acquisition of Marcellus shale gas specialists, East Resources, Inc.. Shell will instantly own over a million acres of prospective shale gas lands from this transaction, owning a shale gas portfolio that can only be bettered amongst the super-majors by ExxonMobil.

    Another company making a bold entrance to into the US shale scene was Indian conglomerate, Reliance Industries who farmed into two shale plays, the Marcellus shale in Pennsylvania with Atlas Energy, and the Eagle Ford shale in Texas with Pioneer Natural Resources. In total, Reliance has committed to spend $2.8 billion in cash payments and cost carry for their partners and will team up with two companies with significant experience in shale gas extraction.

    A major part of the motivation for Reliance for the deals is for the company to gain experience in extracting gas from shale, with the US being far and away the leader in this field. Reliance’s home country, India, is estimated to contain abundant shale resources which have the potential to contain reserves in excess of the country’s conventional resources. Due to government imposed restrictions, unconventional resources in India have so far been substantially untapped with little exploration or development taking place. However on the back of the success of the US shale gas plays, the government has recently declared that policy will be in place for companies to take advantage of the resource within a year. At that time Reliance will aim to have a clear advantage over its domestic peers. Already in Q3 2010 rumours are circulating that Reliance has lined up a third billion dollar US shale gas farm in.

    Shale Gas Buzz Reflected in Lease Sales

    The buzz of the shale sector also extended to government lease auctions with sales within shale areas attracting record bids. This was evident in the latest Michigan lease sale in the Collingwood shale which reaped $178 million, a record for the state and just under the $190 million raised in the past 81 years combined. The June 2010 British Columbia lease sale that focused on the Montney shale play attracted C$404 million dollars of high bids whilst Alberta’s latest lease sale in the Duvernay shale announced in early July grossed C$451 million of bids.

    Oil Sands Attracts Chinese Investment

    The Canadian oil sands sector attracted US$5.5 billion worth of deals during the quarter. The vast majority of this value came from two deals, with Sinopec acquiring ConocoPhillips’ 9% interest in Syncrude for $4.65 billion and China Investment Corp acquiring a 45% interest in Penn West Energy Trust’s Peace River assets for $780 million. After CNOOC’s failed acquisition of Unocal in 2005 due to strong public and political opposition, government-backed Chinese companies have been developing a portfolio of global assets via more low-key acquisitions of a variety of non-controlling and partial interests. Within Canada the focus of the assets deals from Chinese companies have been on Oil Sands projects with four significant acquisitions taking place since 2009.

    Horizon Fallout Threatens Offshore Asset Deals

    Offshore assets attracted $9.4 billion worth of deals during the quarter with two companies accounting for over two thirds of the value. Sinochem acquired a 40% interest in the Peregrino field offshore Brazil for $3 billion and Apache acquired Gulf of Mexico assets for $1.05 billion from Devon and agreed to acquire Mariner Energy for $3.9 billion (of which approximately 65% of the value is attributable to Gulf of Mexico assets). Both of the Apache acquisitions were negotiated and announced before the deepwater Horizon oil rig explosion and subsequent mass leak of oil which to date has still not been successfully plugged. The fallout of the leak put the safety merits of deepwater Gulf of Mexico exploration onto the political agenda and led to a suspension of deepwater drilling while new safety measure were devised. The acquisition of Devon’s assets closed in June despite these measures due to the assets lying in shallow waters. The acquisition of Mariner Energy which includes deepwater assets has not yet closed and Mariner Energy is still trading below Apache’s offer price. This is indicative of the apprehension in the market that the deal may be scuppered by new regulations, possibly increasing operating costs and decreasing drilling opportunities.

    *For corporate deals involving various resource types, Evaluate Energy has estimated the deal value for each segment.



    Disclosure: none

    Eoin Coyne
     is an Oil&Gas M&A specialist at Evaluate Energy a London based Oil&Gas data provider.
    Tags: XOM, ATLS, XTO, COP, APA, DVN, Oil
    Sep 06 6:00 AM | Link | Comment!
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