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U.S. Oil and Gas Upstream Deal Counts Down 17% in 2013, Says PLS Inc.

U.S. Deal Value of $51.8 Billion in 519 Transactions

HOUSTON, TX -- (Marketwired) -- 01/14/14 --

  • Largest deal of the year (in U.S. and globally) is Devon's $6.0 billion Eagle Ford acquisition.
  • Foreign U.S. investments drop to $6.0 billion vs. $11.3 billion in 2012 & $44.8 billion in 2011.
  • Most impactful U.S. deal of the year: Linn Energy's $4.9 billion buy of Berry Petroleum.
  • U.S. land grab in known unconventional resource plays substantially over.
  • Top U.S. Areas: Eagle Ford, Permian unconventional, Rockies conventional, shallow Gulf of Mexico, Bakken.
  • 2013 $51.8 billion deal value down 42% from 2012, unconventional deal share is 54% vs. 45%.
  • Roughly eight months of inventory in Deals in Play in the U.S., compared to 11 months globally.

PLS Inc., a leading research, transaction and advisory firm to the global E&P and financial industries, in conjunction with its international partner Derrick Petroleum Services, reported that U.S. upstream oil and gas M&A activity in 2013 totaled $51.8 billion in 519 transactions (including 322 with deal value disclosed). The largest deal -- in the U.S. as well as the world -- is Devon Energy's $6.0 billion cash buy of a prime Eagle Ford position in Texas (including 53,000 boepd and 82,000 net acres) from privately held GeoSouthern Energy. This deal also represents the single largest pure-play unconventional asset buy, surpassing BHP Billiton's $5.0 billion Fayetteville shale acquisition in Arkansas from Chesapeake in November 2010.

                                  Table 1
               Top 10 U.S. Oil and Gas Upstream Deals in 2013

 Announced        Buyer               Seller         ($MM)   Asset Location
---------- ------------------ --------------------- ------- ----------------
11/20/2013    Devon Energy      GeoSouthern Energy   $6,000    Eagle Ford
02/21/2013     Linn Energy       Berry Petroleum     $4,900     Multiple
07/18/2013  Fieldwood Energy          Apache         $3,750     GOM Shelf
01/30/2013      Sinochem             Pioneer         $1,700      Permian
09/04/2013   Oasis Petroleum  Roda Drilling; Zeneco  $1,450      Bakken
06/20/2013   Bennu Oil & Gas      ATP Oil & Gas      $1,269     GOM Deep
01/15/2013  Denbury Resources     ConocoPhillips     $1,050      Rockies
02/25/2013       Sinopec            Chesapeake       $1,020 Mississippi Lime
10/03/2013 Templar; Le Norman       Forest Oil       $1,000   Panhandle TX
12/09/2013    QEP Resources          EnerVest         $950       Permian
---------- ------------------ --------------------- ------- ----------------
                                      Total         $23,089

PLS calculates that 2013's total of $51.8 billion U.S. deal value is down 42% from 2012's record $89.6 billion. However, that 2012 total was skewed by Freeport McMoRan Copper & Gold's $17.6 billion buy of Plains E&P. Excluding, the Plains sale, 2013 deal value would be down 28%, closer to the 17% drop in deal count during the same period (from 624 deals in 2012 to 519 in 2013).

During 2013, the Eagle Ford shale ($8.8 billion) took top honors for deal value followed by the unconventional Permian ($7.5 billion), Rockies conventional ($5.5 billion), shallow Gulf of Mexico ($4.2 billion) and Bakken ($2.9 billion). This compares to 2012 rankings led by the unconventional Permian ($7.7 billion) deepwater Gulf ($7.2 billion), Bakken ($7.0 billion), shallow Gulf of Mexico ($6.3 billion) and conventional Permian ($5.6 billion).

An analysis of M&A activity reveals the U.S. oil and gas industry is in the early stages of transforming from buying land in unconventional plays to drilling and development of these positions. The land rush began in earnest in 2007, kicked into high gear in December 2009 with ExxonMobil's $41.0 billion buy of XTO Energy, and seemed to peak in 2011 with BHP Billiton's $15.1 billion acquisition of Petrohawk.

"As the land grab winds down, companies are now focused on drilling thereby raising additional capital demands," said Brian Lidsky, Managing Director of PLS Inc. "As the drilling capital needs intensify, companies will adjust their inventories to keep finances in order. Subsequent drilling results and the drive for cost efficiencies will also divide winners and losers and could drive market consolidation between the public companies while providing exit opportunities for private independents like Geosouthern. Overall, PLS sees the most deal opportunities in the Eagle Ford, Permian, Bakken and Marcellus core, while mature shale plays like the Barnett offer maintenance opportunity for MLPs like EnerVest."

PLS also notes that core areas are emerging in each of the shale plays for optimal development based on the rocks, infrastructure and completion techniques. In 2013, these core areas continued to be more tightly defined and some companies like Shell and BHP that bought in the periphery or bet on rising natural gas prices have had to take write-downs. As with the Devon/GeoSouthern Eagle Ford transaction, PLS expects the price of entry into the core-of-the-core areas to continue to rise. Scale and efficiencies (pad drilling, completions) ultimately will drive costs lower and set up more consolidation, with top operators earning the upper hand.

Foreign Investment down 86% since 2011 --
Part of the U.S. M&A decline in 2013 is due to less cash being spent by foreign interests. Since 2007, foreign buying of $113 billion accounted for 25% of the U.S. market with 72% of that money going toward the unconventional resources. The peak year was 2011 with $44.8 billion or 53% of the market, of which $34.5 billion was for unconventional. 2011 saw Australia's BHP Billiton buying Petrohawk (Eagle Ford, Haynesville) for $15.1 billion and Norway's Statoil buying Brigham Exploration (Bakken) for $4.7 billion.

                                   Table 2
                  United States Oil and Gas Upstream Deals
                   Conventional versus Unconventional (1)
         Conventional     Unconventional        Total      % Unconventional
 Year   Value    Count    Value    Count    Value   Count   Value    Count
 2013   $23.9     256     $27.8     263     $51.8    519     54%      51%
 2012   $48.9     290     $40.7     334     $89.6    624     45%      54%
 2011   $21.5     357     $62.4     372     $83.9    729     74%      51%
 2010   $30.8     280     $44.7     244     $75.5    524     59%      47%
 2009   $14.0     224     $47.8      87     $61.8    311     77%      28%
 2008   $25.0     275     $22.9     108     $47.9    383     48%      28%
 2007   $45.5     279      $4.2      56     $49.7    335      8%      17%
 Total  $209.7   1,961    $250.5   1,464   $460.2   3,425    54%      43%

Note: (1) Deal Value in US$ billions. Deal Counts include those with values not disclosed.

Since the 2011 peak of $44.8 billion, foreign spending in the U.S. has dropped off dramatically, declining 75% in 2012 to $11.3 billion ($8.8 billion for unconventional resources) and another sequential 47% in 2013 to $6.1 billion ($4.4 billion for unconventional). Since 2007, the only other year that saw less foreign investment was 2009 ($5.4 billion), but that same year ExxonMobil paid $41 billion for XTO Energy, bringing global attention to U.S. unconventional opportunities. While foreign companies remain interested in U.S. assets, it is not likely we will see the rush to invest as quickly in U.S. plays as we did in 2010 and 2011. For those global interests not yet in the U.S., partnering with top operators will continue to be a large part of the equation but we expect foreign investors to be more selective in the future.

MLPs & private equity replacing foreign investors as a go-to source for capital --
Despite the decrease in foreign spending, there remain strong buying sectors including the U.S. upstream MLPs and private equity. On the MLP front, 2013 saw two remarkable transactions. The first is Linn Energy's $4.9 billion acquisition of Berry Petroleum, which closed on December 16 after ten months of reviews. This transaction is a milestone for the M&A markets, marking the first-ever acquisition of a public C-Corp by an upstream LLC, and opens the door for self-described "acquisition machine" Linn and other MLPs to structure transactions for corporate acquisitions, as opposed to asset-based deals. The second notable MLP transaction bucks the MLP buying and dropdown theme and saw Pioneer Natural Resources buy back the 48% stake of its related MLP Pioneer Southwest Energy Partners that it did not own for $606 million. This deal will help Pioneer boost scale and operating efficiencies in the Permian Basin.

Private equity buying and selling remains strong and their coffers are well-stocked. For example, last year's Devon/GeoSouthern deal rewarded private equity firm Blackstone with $1.54 billion. Also in 2013, energy-focused PE firm Riverstone Holdings made its largest commitment to date by backing Fieldwood Energy's $3.75 billion buy of Apache's Gulf of Mexico shelf assets (and already this year its $1.12 billion GOM buy from SandRidge). The Apache sale marks the last exit of any significant presence by a major or large independent from the GOM shallow waters. By and large these companies are re-deploying capital to the U.S. onshore resource plays or deepwater Gulf of Mexico.

$38 billion of Deals in Play --
In addition to tracking completed deals, PLS and Derrick through their Global M&A Database and PLS through its multiple listing service provide the industry's only commercially available comprehensive list of oil and gas buying opportunities in the world, together known as "Deals in Play." On a quarterly basis using PLS and Derrick's proprietary valuation analytics, the firms report a total dollar value of deals available in the upstream oil and gas marketplace. When compared to actual transaction volumes, this leading indicator allows industry participants to gauge relative market strength across various oil and gas regions and plays.

As of January 1, 2014, the rapid growth of the U.S. "Deals in Play" inventory has stabilized and now totals $38 billion, up from $33 billion a quarter ago and $27 billion a year ago. This total represents roughly eight months of M&A activity, compared to $127 billion of "Deals in Play" or 11 months of inventory globally.

For 2014, PLS expects the U.S. deal markets to continue to be driven by: 1) Traditional sale of non-core assets by oil and gas firms; 2) High-quality, later-stage JV opportunities still sourcing capital for drilling; 3) Ample private equity sources energized by recent successes like GeoSouthern and Hilcorp; and 4) MLPs' need to feed their dividend-driven business models.

Later this month, PLS will release its more detailed annual oil and gas M&A study analyzing additional data including regional activity plus valuation trends. Prior studies are available at www.plsx.com/ma. For sales or more information regarding the Global M&A Database, please call PLS Inc. at (713) 650-1212, email [email protected] or visit www.plsx.com/ma.

About The Global M&A Database: PLS Inc. and Derrick Petroleum Services provide global clients with leading information and research services. Since 2007, the Global M&A Database has tallied more than 7,000 upstream oil and gas transactions including over 4,400 with values disclosed, totaling over $1.2 trillion. This unique database is maintained 24/7 by a team of analysts and are accessible via the web at www.plsx.com/ma.

Source: PLS Inc., Copyright © 2014 by PLS Inc.

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Brian Lidsky
Managing Director
[email protected]

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