$42 Billion in Oil & Gas Deal Announced Third Quarter 2013

HOUSTON, TX--(Marketwired - Oct 11, 2013) - PLS Inc.

• Total value of global transactions up nearly 60% from Q2.
• US value up 40%; Europe and Canada rebound.
• Africa and South America continuing strong.
• Inventory of Deals in Play stabilizes at $135 billion.
• NOCs and Private Equity most active set of buyers.
• China snaps up 25% of the global market.
• US valuation benchmarks are $110,000/boepd and $5,800/Mcfepd.
• North American deal market reflects impact of large capital needs for resource play development.

PLS Inc., a Houston-based research, transaction and advisory firm, in conjunction with its international partner Derrick Petroleum Services, announced that global upstream oil and gas M&A activity for Q3 2013 totaled $41.8 billion in 150 separate transactions (with deal value disclosed). This is up 59% from Q2 totals of $26.4 billion in 168 deals and down 19% from Q3 2012 totals of $51.3 billion in 155 deals. For comparison, the Q3 total of $41.8 billion is down a nominal 3% from the quarterly average recorded since 2007. For deal counts, Q3's tally of 150 deals is also down a nominal 4% from quarterly averages since 2007.

Brian Lidsky, PLS Managing Director, stated, "This year, the oil and gas deal market started slow after an unusually busy Q4 2012 which saw 238 deals for $138 billion. However, both the pace and dollar amount of deals has consistently increased throughout this year culminating in a Q3 total of $42 billion in 150 deals -- a level of activity on par with quarterly averages since 2007. Furthermore, looking forward we expect the final quarter of 2013 to trend above average for deal activity."

Driving heightened activity in Q3 are several factors including a high deal inventory level along with a healthy level of buying interest from NOCs and private equity. Looking at sellers, there is motivation to divest conventional legacy producing assets as well as sell down interest in large world-class global discoveries. The capital raised from these transactions will be used to help fund increasing capital plans including, but not limited to, North America's resource plays.

A stark example of this trend in Q3 was Apache Corporation's sale of $7.2 billion of assets through a series of rapid transactions which far surpassed its initial goal of $4 billion. Apache will use the proceeds to repay debt, buy back shares and accelerate resource play development, primarily in the US where it is enjoying rapidly growing production in the Permian and Mid-Continent regions. First, Apache sold its legacy Gulf of Mexico shelf portfolio to Fieldwood Energy LLC, backed by PE firm Riverstone, for $3.75 billion in mid-July. Next, in mid-August, Ember Resources bought a conventional package in Canada from Apache for $214 million. Two weeks later Apache sold one-third of its Egyptian holdings to Sinopec for $3.1 billion. And finally, in mid-September, Apache sold another two Canadian conventional deals for $112 million. 

Table 1
Quarterly Global E&P Mergers & Acquisitions
	Q3-2012	Q4-2012	Q1-2013	Q2-2013	Q3-2013
Deal Count	155	238	136	168	150
Deal Value (US$MM)	$51,301	$138,379	$22,657	$26,381	$41,826

Source: PLS Derrick M&A Database. Only includes deals with price disclosure. 

Regional Breakdown

Regionally, North America's $15.9 billion in oil and gas M&A activity (Table 2) continued to lead the global M&A market with a 38% share, albeit down from 42% in Q2 and down from an average 56% share since 2007. 

North America is followed by the FSU (28%) and Africa (16%) as the globe's most active regions for deals. Noteworthy regional rebounds this quarter occurred in Europe and Canada. In Europe (including the North Sea), deal activity rebounded to $2.9 billion from just $0.5 billion in H1 2013. Historically Europe/North Sea tallies about $1.8 billion in deals quarterly. Canada also rebounded to $3.7 billion compared to $2.9 billion in H1 2013. While up, the pace in Canada still lags the $7.6 billion in deals announced quarterly since 2007.

Africa remains a bright spot with a 16% share of global value. Prior to 2013, Africa captured just 6% of global deal value. South America is also running strong with an 11% share compared to 5% historically. In the FSU, deal value surged to $11.6 billion and the region captured a 28% share. The largest FSU transaction in Q3 is ConocoPhillips' $5 billion sale to CNPC of 8.4% interest in Kazakhstan's Kashagan field.

Table 2
Global Oil and Gas M&A Deals - Q2 and Q3 2013
	Q2 2013	Q2 2013	Q3 2013	Q3 2013
Continent	Deal Value	Deal Count	Deal Value	Deal Count
	(US$MM)		(US$MM)
Africa	$5,794	8	$6,486	7
Asia	$438	4	$386	7
Australia	$146	6	$109	6
Europe	$185	7	$2,946	11
Former Soviet Union	$6,659	10	$11,583	6
Middle East	$0	0	$0	0
North America	$10,945	124	$15,886	105
South America	$2,215	9	$4,430	8
TOTAL	$26,381	168	$41,826	150

Source: PLS Derrick M&A Database. Number of deals above is for deals with price disclosure. Deal count totals including those without price disclosure are 296 in Q2 and 239 in Q3.

According to Mangesh Hirve, Director, Derrick Petroleum Services, "Global NOCs, including China, continue to scour the globe to secure long-term oil and gas supplies. In particular, Asian NOCs' buying continues unabated. This quarter saw another $13.4 billion of buying by Asian companies, of which $10.5 billion (or 25% of the global market) is from China followed by $2.6 billion from India. Just this quarter, China bought large deals in Kazakhstan, Egypt and Brazil. Since 2007, China has bought $136 billion in oil and gas deals or 12% of the market."

There were 11 deals which topped the $1 billion threshold during Q3, up from six in the previous quarter and equal to Q3 2012. Noteworthy this quarter is the global diversity of these large deals, which occurred in eight countries. 

Table 3
Q3 2013 Global Deals > $1 Billion
Date	Buyers	Sellers	Deal Value	Country
			(US$MM)
09/09/13	CNPC (China)	ConocoPhillips	$5,000	Kazakhstan
07/18/13	Fieldwood Energy LLC	Apache	$3,750	United States
08/29/13	Sinopec	Apache	$3,100	Egypt
07/02/13	Rosneft	Itera	$2,900	Russia
08/19/13	OMV	Statoil	$2,650	Norway
08/25/13	ONGC (India)	Anadarko	$2,640	Mozambique
09/24/13	Rosneft	Enel SpA	$1,800	Russia
08/16/13	Sinochem	Petrobras	$1,543	Brazil
09/29/13	Pacific Rubiales	Petrominerales	$1,529	Colombia
09/04/13	Oasis Petroleum	Roda, Zeneco	$1,450	United States
09/27/13	Rosneft	Alrosa Co. Ltd.	$1,380	Russia

Source: PLS Derrick M&A Database

United States - Q3 2013

US deal activity in Q3 2013 declined 24% to 68 transactions compared to 90 in Q2 2013. However, deal value bounced back with an increase of 40% to $12.2 billion compared to Q2 2013.

Table 4
United States E&P Mergers & Acquisitions
	Q3-2012	Q4-2012	Q1-2013	Q2-2013	Q3-2013
# of Deals	74	116	67	90	68
Deal Value (US$MM)	$19,882	$37,918	$13,359	$8,797	$12,229

Source: PLS Derrick M&A Database. Only includes deals with values disclosed.

According to Lidsky, "The biggest US deal this quarter is the $3.75 billion sale of Apache's Gulf of Mexico shelf assets to Fieldwood Energy. This deal is noteworthy on several fronts. First it immediately vaults Fieldwood into operating the largest GOM shelf asset base with current production of 95,000 boepd. Second, the transaction amplifies the role of private equity in today's markets. Fieldwood is backed by PE firm Riverstone and according to Fieldwood, the deal represents Riverstone's largest single investment. Lastly, the deal represents a noteworthy change for Apache which, over a span of 30 years, had operated in the Gulf of Mexico shelf to build the company into where it is today. Now Apache's growth is in large part coming from US onshore resource plays. This is a trend in the US markets which is not unique to Apache." 

Other continuing themes in the US during Q3 were high activity in oily onshore resource plays. Outside of the Gulf of Mexico, the most active area in Q3 was the Bakken. Since May 2007, there have been 249 deals totaling $24 billion, with 14 deals for $2.0 billion in Q3. The largest deal is Oasis Petroleum's $1.45 billion buy from privately held Roda Drilling and Zenoco Inc. Oasis also completed three additional Bakken buys for another $65 million. Following the Bakken, the next most active region is the Eagle Ford with $1.2 billion in nine deals, the largest of which is Exco's $681 million purchase of Chesapeake's South Texas assets. Exco also bought Chesapeake's Haynesville assets during this quarter for $316 million.

Regarding upstream valuations in the US, current benchmark multiples for PDP-weighted conventional assets are down slightly for oil and up slightly for gas. Using our proprietary screen, oil-weighted asset multiples today are $110,000 per boepd or $18.75 per proved boe with an average R/P of 16 years (versus last quarter's $120,000 per boepd or $22.50 per proved boe and average R/P of 16 years). For gas, the multiples are $5,900 per Mcfed and $1.50 per proved Mcfe with an average R/P of 11 years (versus last quarter's $5,800 per Mcfed and $1.75 per proved Mcfe with an average R/P of 10 years).

Looking Forward

Also using our proprietary analytics, on October 1 the rapid growth of the inventory of deals in play has stabilized and now totals $135 billion, up just $2 billion from $133 billion on July 1. The tally stood at $116 billion on March 31 and $85 billion on December 31.

Table 5
Select Q3 2013 Announced Deals in Play > $1 Billion
Date	Sellers	Country	Comment
09/04/13	KNOC	Canada	Harvest Operations mulling options
07/25/13	Marathon	Libya	Marathon Oil to sell interest in Libya asset
09/29/13	Shell	United States	Shell to sell Eagle Ford assets
09/16/13	Imperial Oil	Canada	Imperial Oil to sell assets in Western Canada

Source: PLS Derrick M&A Database

The United States has the largest inventory of deals in play with an estimated $33 billion (down from last quarter's $37 billion), followed by Canada with $25 billion (up from $17 billion), Russia with $15 billion (same as last quarter) and Brazil with $13 billion (down from $15 billion).

New deals in play include Korea's KNOC with media reports stating that the company is reviewing the sale of part -- or perhaps all -- of Harvest, a Canadian company KNOC purchased for $4.0 billion in October 2009. Surprising the markets this quarter is an announcement by Shell that it is looking to shed its Eagle Ford assets. In May 2010, Shell leased the Harrison Ranch in South Texas for $1.0 billion ($9,400 acre), and it is now producing about 93.6 MMcfed (40% liquids) from its Eagle Ford assets. Shell is also looking to sell a substantial onshore position from its Nigeria portfolio. Other major companies putting assets on the market include Marathon reportedly looking to sell its Waha oil concession in Libya currently producing 38,000 boepd (89% oil). In Canada, Imperial Oil is marketing properties currently producing 15,600 boepd (51% oil).

PLS Inc. and Derrick Petroleum Services provide US, Canadian and International clients leading US, Canada and International M&A databases and services. These databases now cover the upstream, midstream, downstream and OFS sectors and are maintained 24/7 by a team of analysts and are accessible via the web at www.plsx.com/ma.