M&A And Investments Continue To Plummet In The Oil & Gas Industry In Q2 2010

12 Aug 2010 • by Natalie Aster

GlobalData's “Oil and Gas Quarterly Deals Analysis M&A and Investments Trends - Q2 2010” report is an essential source of data and trend analysis on the Mergers and Acquisitions (M&A) and financings in the oil and gas industry. The report provides detailed information on M&A, equity/debt offerings, Private Equity (PE), venture financing and partnership transactions registered in the oil and gas industry in Q2 2010. The report gives detailed comparative data on the number of deals and their value in the last five quarters, subdivided by deal types, segments, and geographies. Additionally, the report provides information on the top PE, Venture Capital (VC) and advisory firms in the oil and gas industry.

Data presented in this report is derived from GlobalData’s proprietary in-house Energy eTrack deals database and primary and secondary research.

M&A Activity Slowed Down In The Oil And Gas Industry In Q2 2010

M&As, which include changes in ownership and control of companies (GlobalData considers this value as not a new investment into the market), witnessed a declining trend in deal value, reporting $21.4 billion in Q2 2010 compared to $32.4 billion in Q1 2010, a decrease of 34%. The number of M&A deals also registered a 24% decline, with 99 deals in Q2 2010 compared to 133 deals in Q1 2010. Leading oil and gas companies are struggling to make acquisitions due to the volatile price environment. The companies are looking towards long term sustainable growth opportunities in the present scenario, which resulted in less M&A activity in Q2 2010 compared to the previous quarter.

The average deal value increased from $256.4 million in Q1 2010 to $298.9 million in Q2 2010 and the median value also increased from $15.9 million in Q1 2010 to $42.6 million in Q2 2010.

According to Swati Singh, Lead Analyst at GlobalData, “After a good start in the first quarter of 2010, the uncertainty in the market due to the GOM spill has put the brakes on M&A activity in the oilfield services sector. The deepwater drilling moratorium has not only impacted the valuation multiples of offshore service providers and companies operating in the US GOM. GlobalData expects oilfield services industry to reduce their risk profiles by expanding geographically and by diversifying their portfolio of services into other areas of the energy market. Top oil and gas deals this year include oilfield services company Schlumberger's more than $11 billion purchase of Smith International; Royal Dutch Shell's (RDSa.L) $4.7 billion deal to buy shale gas play East Resources; Apache $3.9 billion acquisition of Mariner Energy; and Royal Dutch Shell and Petrochina $3.1 billion Acquisition of Arrow Energy.”

Asset Transactions Remained Almost Flat In Oil And Gas Industry In Q2 2010

Asset transactions in the oil and gas industry remained almost flat, reporting 262 deals worth $23 billion in Q2 2010 compared to 260 deals worth $22.5 billion in Q1 2010. On a year-on-year basis, asset transactions witnessed a huge increase of 97% in deal value and a marginal increase of 11% in the number of deals in Q2 2010 when compared to 236 deals worth $11.7 billion in Q2 2009. GlobalData expects that the oil and gas market is relatively undervalued in the current scenario, so large national independent oil and gas companies are likely to enhance their oil and gas portfolio by adding new assets/prospects in the coming quarters.

The average cost ($) per barrels of oil equivalent (Boe) production incurred by companies in acquiring assets and companies in the global upstream sector increased from $70,821.1 in Q1 2010 to reach $89,550.1 in Q2 2010. Further, on a year-on-year basis, oil and gas asset valuations increased by 67% in Q2 2010 from $53,660.1 per Boe of daily production in Q2 2009. Additionally, the value of proved or 1P reserves increased from $8.7 per Boe in Q2 2009 to $14.8 per Boe in Q2 2010.

According to Swati Singh, Lead Analyst at GlobalData, “BP oil spill may prompt oil and gas companies to sell their assets especially in the Gulf of Mexico as they re-organize their exposure in the Gulf of Mexico. BP has agreed to sell oil and gas fields in the US, Canada and Egypt to Apache for $7 billion to meet the costs of the Gulf of Mexico oil spill. BP also plans to sell most of its assets in Vietnam and Pakistan, which are valued at about $1.7 billion. Going forward in 2010, GlobalData expects oil and gas M&A deals to stay strong, as BP's Gulf of Mexico oil spill could make onshore assets more attractive.”

New Investments In The Oil and Gas Industry Dropped By 33% In Q2 2010

Investments in oil and gas companies, including financings through equity offerings, debt offerings, PE and venture financing reported a decrease of 33% in the second quarter of 2010, reporting $36.5 billion of investments in Q2 2010 compared to $54.8 billion in Q4 2009. The industry also witnessed a decrease in the number of deals with 233 deals in Q2 2010, compared to 315 deals in Q1 2010. The uncertainty in the current oil market demand coupled with volatile commodity prices has made companies wary in their investment approach, affecting the overall oil and gas market sentiments.

Decreased Financing Through Debt Offerings In Q2 2010

Global capital raising through debt offerings has seen a gradual decline in deal flow since Q3 2009. The market recorded only 47 deals worth $21.7 billion in Q2 2010, compared to 87 deals worth $37.2 billion in Q1 2010. On a year–on-year basis, deal value witnessed a huge decrease of 70% in Q2 2010 when compared to $71.6 billion in Q2 2009. Further, public debt offerings witnessed a decrease of 42% in the number of deals and 29% in deal value, reporting 25 deals worth $13.4 billion in Q2 2010 compared to 43 deals worth $19 billion in Q1 2010. The private debt placement market witnessed a huge decrease of 50% in the number of deals and 54% in deal value, reporting 22 deals worth $8.3 billion in Q2 2010 compared to 44 deals worth $18.2 billion in Q1 2010.

Equity offerings registered a decrease in the number of deals and deal value, reporting 171 deals worth $12.8 billion in Q2 2010 compared to 213 deals worth $16.7 billion in Q1 2010. The IPO market saw a decline of 64% in the number of deals and 96% in deal value, reporting four deals worth $188.2 million in Q2 2010 compared to 11 deals worth $5 billion in Q1 2010. The huge difference in deal value was due to few big tickets deals in Q1 2010, with OSX’s IPO of $1.6 billion; Athabasca Oil Sands’ IPO of $1.3 billion; and Gujarat State Petroleum’s filing of an IPO for $771 million contributing the most to the total deal value.

New Investments From The Private Equity/Venture Capital Market Increased In Q2 2010

Investments by PE/VC firms in the oil and gas industry remained flat with 15 deals in Q1 2010 and Q2 2010 respectively, while deal value increased from $960.4 million in Q1 2010 to $2.1 billion in Q2 2010, an increase of 112%. The oil and gas industry valuation is lower and is looked on as an investment opportunity for better returns in the long term by PE/VC firms.

Alinda Capital Partners’ acquisition of NorTex Gas Storage for $500 million; First Reserve’s agreement to invest $500 million in Barra Energia; and Kohlberg Kravis Roberts agreement to invest $400 million in Hilcorp Resources were some of the big ticket financing deals reported in Q2 2010.

North America And Europe Registered A Decline In Investments In Q2 2010

The North American region reported a decline in the number of deals and deal value, reporting 430 deals worth $58.3 billion in Q2 2010 compared to 460 deals worth $74.2 billion in Q1 2010. Further, the deal making activity in European region declined from 104 deals worth in Q1 2010 to 76 deals in Q2 2010. The oil prices dropped below $80 a barrel in the first week of May 2010, as fears a Greek-style debt crisis may spread to other European nations raised uncertainty over future global energy demand.

Additionally, Asia-Pacific and the rest of the world, including South & Central America and the Middle East, witnessed a huge decrease in deal value after a good run in the last quarter, reporting $1.4 billion and $5.4 billion respectively in Q2 2010 compared to $16.3 billion and $19 billion in Q1 2010. The decrease in the Middle East was due to the difficult environment faced by investment banks in the region.