Upstream merger, acquisition activity hits record $39bn in Q1 2014

Upstream mergers and acquisitions (M&A) activity in the global oil and gas industry had a booming start to the year, with $39 billion of disclosed spend setting a new record for first quarter (Q1) spend. The increasing trend of asset divestments by international oil companies (IOCs) continues to drive M&A deals in the industry.

Not only was the spend in the first quarter up 75 percent on Q1 2013, the quarterly deal flow of 116 was up 24 percent on Q1 2013, and 8 percent on the five year Q1 average, according to data from Wood Mackenzie, a global leader in commercial intelligence for the energy, metals and mining industries.

And despite the large number of available assets, underlying deal valuation remained strong, said Mackenzie, adding that its implied long-term oil price analysis shows that the average for deals in Q1 was $86 per barrel, which is firmly in line with recent quarters. 

Deal spend in North America reached its highest levels since fourth quarter of 2012.  The quarterly focused spend of $20.4 billion for the United States and Canada was a 43 percent increase on Q1 2013. 

North America has emerged as the world’s most popular destination for lucrative upstream M&A transactions. The North American deal market reflects the impact of large capital needs on resource play development, said CBO Capital in a recent report.

For the rest of the world, the spend of $18.8 billion represented a 128 percent jump on Q1 2013.  L1’s $7.1 billion acquisition of RWE Dea was a significant factor in the total.

Changing buyer profiles were evident, with smaller and alternative buyers underpinning the market.  Private equity was prominent, and there were unexpected acquisitions from Baytex, Brightoil and Chinese jewellery manufacturer Goldleaf.  

Small exploration and production companies dominated in the vast, smaller end of the market, accounting for 86 percent of all deals in the first quarter.

National oil companies had a quiet Q1 by recent standards, spending just $7 billion. Those from the Middle East, Russia, Africa and Latin America were busy, but the usual big-spenders in Asia made no acquisitions of note. 

The majors and independents remained on the side-lines from a buyer perspective, making net disposals of $11 billion in the first quarter.

Conventional resource-focused deals continues to hold sway, with spend trending up at the same time that unconventional focused spend is falling.  Conventional activity is marked by high deal flow but not necessarily big valuations.

Much of the focus for IOC restructuring is on conventional assets, said Mackenzie.

Shale gas M&A remains weak with limited appetite for US plays, and Canadian deals have dried up for the time being. 

Tight oil M&A is buoyant, but dominated by small companies doing modest deals; Devon’s $6-billion acquisition of GeoSouthern in the fourth quarter of 2013, being the exception to the rule.

The rise in divestment by IOCs from onshore and shallow water fields has been the major driver of M&A in Nigeria’s upstream sector which was largely inactive until the sale of the Shell Petroleum Development Company’s (SPDC) eight assets for a combined total of $2.6 billion between 2010 and 2012.

FEMI ASU