Investors Eye North American Oil and Gas Opportunities
Surge in Mergers and Acquisitions in the United States and Canada Amid Low Natural Gas Prices
The landscape of the U.S. oil and gas industry is evolving as natural gas prices have plummeted to a 10-year low this year. In response, U.S. oil and gas companies are increasingly focusing on more profitable liquid-rich unconventional plays, leading to a remarkable surge in asset mergers and acquisitions (M&A) in the third quarter of 2012, as reported by PwC US.
A significant rise in asset deals marked this quarter, with 34 deals totaling $31.4 billion. This represents a 131% increase from the same period last year, with asset deals alone making up 93% of the top 10 mega deals valued at $1 billion or more. PwC’s Rick Roberge, a principal in the energy M&A practice, noted that the third quarter saw 10 mega deals, predominantly upstream asset transactions, as companies pursued oil-rich plays amidst depressed natural gas prices.
Notably, ExxonMobil Corp.’s announcement of a $3.1 billion acquisition of Canadian unconventional producer Celtic Exploration Ltd. indicates that more significant M&A deals are likely on the horizon. Roberge highlighted that large companies remain under-invested in North American shale, particularly in remote and challenging areas of Canada, which presents more opportunities for international oil companies (IOCs) and foreign investors.
From July through September, 39 oil and gas deals valued at more than $50 million accounted for $33.7 billion in deal value. Although this is a slight dip from 44 deals a year ago and a decrease in total deal value from $41.1 billion, compared to the second quarter of 2012, total deal value increased by $4.1 billion, with average deal size nearly doubling to $864 million.
The upstream sector was particularly active, making up 54% of deals over $50 million, with 21 deals totaling $18.7 billion. Midstream processing transactions also saw a jump due to the increased extraction of liquids in shale plays, contributing $11.1 billion across nine deals.
In the latest period, 16 shale play transactions totaled $11.7 billion, highlighting a shift towards higher liquids content plays like the Utica Shale. Steve Haffner, a partner with PwC’s energy practice, noted that the Utica Shale remains attractive due to its higher liquids content, which aligns with the current economic environment favoring liquid-rich assets.
The Bakken Shale in North Dakota and the Eagle Ford Shale in Texas were the most active shale plays for M&A deals over $50 million, with the Bakken accounting for six deals worth $4.4 billion and Eagle Ford three deals totaling $658 million.
Financial sponsor-backed transactions also increased, with seven deals totaling $5.3 billion, while strategic deals contributed $28.4 billion across 32 transactions. Master limited partnership (MLP) transactions have surged, making up nearly 20% of 2012’s deal activity to date, driven by a thirst for high-yield products and readily available financing.
The Gulf of Mexico also saw a rise in deal value, with five deals totaling $7.4 billion marking a two-and-a-half year high. This resurgence is attributed to positive lease sales, increased rig counts, and M&A activity ticking up.
Corporate transactions valued at more than $50 million included five deals totaling $2.3 billion, and foreign buyers announced four M&A transactions worth $4 billion. The downstream sector added $1.7 billion across five deals, while oilfield services contributed four deals worth $2.2 billion.
Roberge emphasized that the excitement around shale plays continues to attract foreign companies, which see room for further investments in U.S. shale. As the best opportunities in the world now reside in North America, the environment remains highly conducive for business, with more M&A activity expected as companies refocus on these lucrative assets.
Conclusion
The current trends in the oil and gas industry present a prime opportunity for investors looking to participate directly in the sector. With North America becoming a hotspot for potentially profitable investments, now is an opportune time to explore the potential of direct participation in U.S. oil and gas ventures.
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