M&A Activity Update

Posted on February 28, 2011 by Mike Markes

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.

 

 

 

 

 

 

 

 

 

 

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Is M&A Activity Set for a Rebound?

Posted on August 6, 2010 by Mike Markes

The August 2010 issue of JPT (official publication of the Society of Petroleum Engineers) features a guest editorial by Michael Collier, Partner, Houston Transaction Services Group, PricewaterhouseCoopers in which he makes several interesting observations about the current state of M&A activity and speculates about future activity.

“One sure sign that the economy is in recovery mode is the increase in merger and acquisition (M&A) activity, including the USD 60 billion of deals in the energy sector in the first quarter of 2010. The depth and breadth of the M&A rebound in energy has been fueled by optimism that we are emerging from a global financial “funk” and we are at the beginning of a long period of sustained economic growth.”

Mr. Collier goes on to credit the resurgence in M&A activity to “pent-up demand” and the new “shale-gas paradigm.” He also credits the recovering stock market for leveling the playing field and “allowing senior executives to see stock-for-stock deals as fair.” “Until recently, it was difficult for both buyer and seller to see any particular acquisition price as the right price because earnings of target companies were declining. As the overall economy improves and sellers report steadily improving quarterly earnings, price expectations between buyer and seller are coming into line.”

As for the future, Mr. Collier predicts “When [price expectations between buyer and seller] are finally aligned, which often happens four to five quarters after the economy begins to recover, then we will see not only corporate cash-for-stock deals become common, but we will also see private equity firms come off the sidelines with a major wave of transactions.” However, he also sees some changes in the way deals will be evaluated, “Given the changing economic variables, and some lingering uncertainty in the capital markets, deal-making experience and savvy will be a valuable ‘commodity’. Our corporate clients are starting to recognize these challenges and are making changes to the way they pursue deals. In fact, we have seen them work hard at getting smarter and in some instances, they are adopting some of the skill sets of petroleum engineering firms to better compete and succeed.”

Mr. Collier sees shale-gas as a potential game changer. “Not only does it create the possibility of a dramatic change in the hydrocarbon supply/demand equation, but it has driven and will continue to drive M&A.” Shale-gas has indeed impacted the US energy industry for a number of reasons and Mr. Collier comments on one of the more interesting aspects, “…the rush to exploit shale gas has also triggered a rush to acquire oil reserves. Although this new ‘oil rush’ surprised many industry observers, it now appears quite logical. With gas prices likely to remain flat (given the tremendous gas supplies found in the shales), there is a new expectation that independent oil companies in particular will be rewarded for oil reserves in the portfolios in the intermediate term.”
 

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