Wednesday, April 13, 2011

2011 dealmaking off to a good start in Q1

In Q1 2011 Global upstream M&A activity totalled $52.4 billion in 174 transactions. That was down 37% from the record set in Q4 2010 of $84 billion, but still sets the pace for a second straight year of more than $200 billion in deals. 

North America emerged as the most active region for deal making, followed by FSU                 North America again led the way with 112 transactions totalling $21.2 billion, for 41% of global deal value. The Former Soviet Union ranked second with 12 deals totalling $15.4 billion. Asia saw $7.5 billion and Africa $6.8 billion. Deal making was relatively quiet elsewhere with announcements for Australia, Middle East, Europe (and the North Sea) and totalling less than $1 billion. Transaction value in South America dropped to $1.1 billion in Q1 from a record $23.5 billion in the prior quarter.

Russia led all countries with $14.7 billion of value changing hands
Russia led all countries with $14.7 billion of value changing hands in six transactions, followed closely by the US at $12.8 billion in 67 deals. Canada was third with $8.3 billion in 45 transactions. Three fourths of the value was in the 10 largest transactions, which totaled $39.3 billion and involved 18 companies from 12 countries, reflecting the diversity and competitiveness in upstream M&A. 

BP shifts to growth mode in 2011, did two major acquisition
National oil companies continued to play a prominent role, active in five of the eight largest transactions. BP was in the two biggest deals, leveraging its expertise to work bold deals with India’s Reliance and Russia’s Rosneft for offshore exploration and development stakes. In India BP took a 30% interest in 23 Reliance-operated offshore PSCs for $7.2 billion and formed a 50:50 joint venture with Reliance to source and market natural gas in India.

Rosneft and BP announced a $7.2 billion share swap and an agreement to jointly develop three highly prospective arctic blocks covering 48,000 sq mi in the Kara Sea, roughly equivalent to the prospective area of the UK North Sea. Slighted TNK-BP shareholders sued to stop the deal, Stockholm TNK-BP ruling puts BP Rosneft deal on ice.

CNPC signed the largest shale gas JV till date
In the largest shale-gas JV to date, Chinese major CNPC committed $5.4 billion to a 50:50 venture with Encana to develop Encana’s Montney shale play and other assets in the Cutback Ridge area in western Alberta and eastern BC. That positions CNPC as a potential LNG exporter from Canada’s West Coast.
In other Canadian shale action, South African synfuels major Sasol doubled up on its $1.1 billion Montney JV with Talisman in late 2010, announcing a second $1.1 billion Montney JV with Talisman just 25 miles north of the first.

BHP made its first move into North American unconventional plays
In the US, BHP snatched up Chesapeake Energys Fayetteville shale assets for $4.7 billion in the Australian resource giant’s first move into North American unconventional plays. Until now BHP’s US focus has been almost entirely on the deepwater Gulf of Mexico. China’s CNOOC Ltd kicked off what could be a spate of Niobrara JVs with a $1.3 billion deal involving Chesapeake, at $4,700/acre. Korea’s KNOC closed out the quarter with a $1.5 billion Texas Eagle Ford JV with Anadarko for liquids-rich acreage, setting a new benchmark of ~$13,000/acre for that play. In corporate-level M&A, there was a continued brisk pace of equity sales or swaps. Abu Dhabi’s state-owned International Petroleum Investment Co bought an added 53% in Spain’s CEPSA from Total for $5 billion. Undeterred by Russian politics, Total moved to buy a 12% stake in Yamal LNG operator Novatek for $4.1 billion, with an option to go to 19% within 36 months. Total simultaneously announced the acquisition of a 20% stake in the Yamal LNG project, which targets first output in 2016 and a potential 15 MMmt/yr of LNG. In other Russian deals, ConocoPhillips sold its remaining $1.2 billion equity stake in LUKoil in an ongoing restructuring effort.

Oil or gas?
Gas-related transactions in Q1 totaled $26.3 billion for half of transaction value. Oil deals were $22.6 billion for 43%. Deals with a mix of oil and gas were only 6%, their lowest share since 2009. This may reflect company efforts to rebalance portfolios from one commodity to the other.

Top 20 deals in Q1 2011

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