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Gas ring

M&A deal volume in US oil and gas industry reaches highest level in 10 years

Merger and acquisition (M&A) activity in the US oil and gas industry hit a 10-year high during the fourth quarter of 2012 with 75 deals, according to PwC US.

A number of factors drove this activity, including private equity (PE) interest, foreign buyers, shale plays, and companies looking to get deals done before the end of the year with the looming fiscal cliff and proposed tax changes.

In fact, that flurry of fourth quarter activity pushed overall deal volume in 2012 to a 10-year high at 204 transactions (for deals valued at over USD50m), representing USD146.2bn – the second highest total deal value in 10 years.

During the final three months of 2012, total deal value reached USD56.2bn, marking the second highest level seen in 10 years (behind the USD79.1bn total deal value seen during the fourth quarter of 2011).

"M&A activity in the US oil and gas sector was extremely robust in 2012, with the vast majority of that activity happening in the final three months of the year as many deals got pulled forward due to the uncertainty surrounding the fiscal cliff," says Rick Roberge, principal in PwC's energy M&A practice. "This past year was a watershed moment for the industry, with private equity involvement reaching an all-time high, shale deal volume at a two-year high during the fourth quarter, and a jump in asset transactions as companies have shifted their focus to adding more profitable liquid rich shale plays to their portfolios. We expect to see a slight pause in M&A during the first part of 2013 as companies focus on the recent wave of deals announced, but believe 2013 will be another banner year for deals as the US oil and gas industry is ripe for continued consolidation. In fact, our recent PwC Global CEO Survey found that energy CEOs are among the most confident on growth prospects for this year than any other industry. "

Private equity deal activity in the oil and gas industry marked an all-time high in 2012 with 34 transactions (which represented USD28.4bn). In the fourth quarter of 2012, there were 11 financial sponsor-backed deals worth USD6.9bn, a slight drop from the 13 PE deals in the fourth quarter of 2011 that totalled USD13.6bn. Additionally, there were 170 strategic deals in all of 2012 that contributed USD117.8bn, compared to 163 strategic deals in 2011 with a total deal value of USD136.5bn. During the fourth quarter of 2012, there were 64 strategic deals, a 64 per cent increase from the 39 deals during the same time period last year. Total deal value for strategics was USD49.2bn during the last three months of 2012, a decline from the USD65.5bn in the fourth quarter of 2011.

PwC notes that during 2012, master limited partnerships (MLPs) were involved in 42 transactions, representing more than 20 per cent of total 2012 deal activity, continuing the trend of increased MLP involvement over the past two years (MLPs represented 15.6 per cent of total deal activity in 2010 and 18.4 per cent in 2011).

For deals valued at over USD50m, upstream deals accounted for 53 per cent of activity in the fourth quarter of 2012 with 40 transactions, representing USD38bn, or 68 per cent of total fourth quarter deal value. The number of oil deals within the upstream sector totalled 22, a significant difference compared to five gas deals in the quarter. There were 21 midstream deals that contributed USD10.9bn. Nine downstream deals during the fourth quarter of 2012 added USD5.9bn, while oilfield services contributed five deals worth USD1.4bn.

Asset transactions dominated total M&A deal volume during the fourth quarter of 2012 with 56 deals, a continuation of a trend that PwC noted during the third quarter of 2012, marking the highest volume of asset transactions in at least 10 years. Total deal value for those asset transactions represented USD27.2bn, the second highest value in 10 years. For all of 2012, there were 158 asset deals worth USD89.3bn.

Also marking a 10-year high, there were 19 corporate transactions (with values greater than USD50m). Those deals had a total deal value of USD29bn during the fourth quarter of 2012. For full year 2012, there were 46 corporate transactions that contributed USD56.9bn.

According to PwC, there were 27 deals with values greater than USD50m related to shale plays in the fourth quarter of 2012, totalling USD16.3bn, an increase from the 22 shale-related deals during the fourth quarter of 2011, although total deal value was flat. For all of 2012, there were 77 shale deals that contributed USD51.7bn, an increase of two deals when compared to full year 2011, but a drop from the USD72.7bn in shale deal value from 2011. Included in the shale deals for fourth quarter 2012 were two transactions from the Marcellus Shale with a total deal value of USD685m and one Utica Shale deal worth USD372m.

PwC also notes that the volume of upstream and midstream shale deals increased in the fourth quarter of 2012 when compared to the same quarter in 2011. There were 17 total shale deals in the upstream sector, accounting for USD9bn, which was one more deal when compared to Q4 2011, although deal value had decreased from USD12.3bn last year. Midstream shale-related deals totalled 10 for the fourth quarter of 2012, representingUSD7.3bn, an increase from the six midstream deals worth USD4bn during the fourth quarter of 2011.

"Throughout 2012, we continued to see a fair amount of repositioning and realignment with companies around midstream assets in the Marcellus Shale and Utica Shale as they looked to build the infrastructure needed to transport the extracted oil and gas," says Steve Haffner, a Pittsburgh-based partner with PwC's energy practice. "Given the disparity in commodity prices, we expect to see continued movement during the year from the Marcellus to the Utica, as the Utica is a more attractive play due to its higher liquid content."


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