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Horizon Disaster Alters Focus of M&A Deals

|Includes: APA, ARWEF, BP p.l.c. (BP), CEO, DVN, ECA, HTE, ME, RDS.A, WPZ

2010 started with a vibrant M&A market with $39 billion of global upstream deals announced during the first quarter of the year. The pace of deals shows no signs of faltering to date as total upstream deal value for Q2 ‘10 has already matched the first quarter with much of the quarter still to play out.

The M&A market has been reinforced by rising oil and gas prices and further recovery of the global economy, with no major shocks barring the recent European debt crisis.

The largest upstream acquisition of Q1 ‘10 was by BP who acquired a portfolio of assets from Devon which were weighted towards the deepwater of the Gulf of Mexico for $7 billion. This deal is still open and with the recent Deepwater Horizon explosion and subsequent major oil leak it is unclear whether BP will wish to complete the deal to add further deepwater assets in an area where they will be facing a huge amount of scrutiny and inevitable litigation.

The fallout from the deepwater oil leak may also have a bearing on other deals, in particular Apache Corp’s $3.9 bln acquisition of Mariner Energy announced in April 2010. Investors are concerned that additional regulation and safety measures may push operating costs higher in the Gulf of Mexico or a prolonged suspension of drilling activities may occur. This will affect the bulk of Mariner Energy’s assets and the apprehension of shareholders can be seen by a share price for Mariner Energy trading $5 below Apache Corp’s offer.

The largest deal of any segment during Q1 ‘10 was by Williams Partners LP, who received the midstream and pipeline assets spun off by its general partner, Williams Companies to the value of $11.75 billion. The reorganization was to the benefit of the shareholders of Williams Companies, due to the tax benefits enjoyed by master limited companies in the US pipeline sector. In a similar deal El Paso Pipeline partners acquired US midstream and pipeline assets from their general partner El Paso Corp for $820 million.

National Oil Companies within Asia continued to figure prominently in the top 20 deals with China securing additional foreign reserves in Argentina via CNOOC’s acquisition of a 50% stake in Bridas Corp. A large portfolio of Coal Bed Methane assets were added closer to home in Australia via PetroChina’s acquisition of Arrow Energy in tandem with Royal Dutch Shell. Korea Gas Corp added to South Korea’s existing investment in unconventional Canadian resources with a C$565 million farm-in with Encana in the Horn River and Montney shale plays. Korea already have a large presence in unconventional oil in the country via KNOC’s previous acquisitions of Harvest Energy and Black-Gold Oilsands.

Chinese National Oil Companies in particular have dramatically increased the rate of their global asset grab in the past 14 months with $33 billion of upstream acquisitions. The scope of the assets acquired has spanned the world with countries including Angola, Argentina, Australia, Brazil, Canada, Iraq Kazakhstan, Nigeria and Turkmenistan and the type of assets targeted has included conventional resources, oil sands, coal bed methane and offshore deepwater assets.

This Article is taken from the Evaluate Energy Quarterly Review which is available for download here.

Disclosure: no positions

Eoin Coyne is an Oil&Gas M&A specialist at Evaluate Energy a London based Oil&Gas data provider.