M&A Activity Update
Scotia Waterous recently published their "Fourth Quarter 2010 U.S. Market Review" which contains some interesting information and observations on the state of M&A activity.
"The fourth quarter exploded with M&A activity, highlighted by several high profile
shale transactions. A total of 54 transactions worth approximately $27.4 billion were
announced during the quarter, which was more than triple the previous quarter. Once
again the focus was on shale assets as approximately 72% of announced transaction
value during the quarter was attributable to this unconventional resource. Producing gas
asset multiples continue to trend downwards in the prolonged low commodity price
environment. In the fourth quarter, reserve metrics dipped as the majority of
transactions involved long life, gas-weighted assets. For example, EnerVest/EV Energy
acquired Talon's Barnett Shale assets for $0.91/Mcfe in a $967 million transaction.
"Public corporate transactions accounted for 36% of fourth quarter activity. EXCO
Resources received an offer to be taken private by management and Chevron acquired
Marcellus Shale focused Atlas Resources, giving the major its first significant shale
acreage position as it follows in the footsteps of other majors like ExxonMobil (XTO) and
Shell (East Resources). Oil-rich shales like the Bakken and Eagle Ford were also very active
during the quarter, with several high profile joint ventures and acreage transactions.
CNOOC, a Chinese national oil company, acquired its first onshore U.S. assets through a
$2.2 billion joint venture in the Eagle Ford with Chesapeake. Statoil and Talisman entered
into a joint venture and acquired Eagle Ford player Enduring Resources for $1.3 billion,
and Occidental, Hess and Williams acquired a combined $3.3 billion of acreage from
private companies in the Bakken Shale. Other notable transactions during the fourth
quarter included Occidental acquiring a large South Texas gas package from Shell for
$1.8 billion and Energy XXI acquiring a $1.0 billion oil-weighted Gulf of Mexico Shelf
package from ExxonMobil."
I am constantly being asked by potential oil and gas investors if there is a way to quickly "size up a deal" to determine its value. As I have warned in past articles, these "rules of thumb" that many use to ball park a deal size can be dangerous because no deal ever seems to be standard, and there are always special circumstances which need to be considered when determining the value of an asset. That being said, Scotia Waterous has provided historical graphs of some of these ball park yardsticks that can be used to get an idea of the value of an asset. As you can see from these exhibits, the type of asset (long life, short life, percent liquid, etc) and its location have a major impact on the value of an asset.
