US deals rise as Big Oil sheds assets

HOUSTON – First-quarter oil and gas deal-making in the U.S. reached its highest level in more than a decade, as Big Oil companies discarded assets to focus on their core operations.

From January to March, typically a slow period for mergers and acquisitions, foreign investors and private equity buyers drove a surge of deals for small or more mature oil-producing assets in the onshore United States and the Gulf of Mexico, according to a report released Wednesday by PricewaterhouseCoopers.

The New York accounting firm reported 43 oil and gas deals worth a combined $19.8 billion in the first quarter — a higher number of deals than the first quarter of 2013 but a decrease in combined value as larger oil companies hive off smaller chunks of their U.S. assets.

“Divestitures are driving activities as companies continue to back their core operations,” said Doug Meier, the U.S. energy sector deals leader for PricewaterhouseCoopers. “They’re shedding those non-core assets to reinvest in their core business or make profits available to shareholders.”

Deals for oil-producing assets accounted for 63 percent of the activity, and $14.2 billion in value. Four deals for pipeline and energy storage assets brought in $1.3 billion.

Meanwhile, oil field services deals picked up, accounting for $2.3 billion in activity — about four times its value in the same period last year. Three deals in the petroleum refining and chemical manufacturing sector were worth a combined $2 billion, according to PricewaterhouseCoopers.

The buyers, mostly private investment funds and international firms, are taking advantage of the buyers’ market, finding prices that work strategically for their portfolios, Meier said. Private equity firms, he said are dispatching more capital to oil fields because the opportunity to sharpen operations and make profitable returns has increased.

Private equity-backed Fieldwood Energy, for instance, bought oil reserves in the shallow waters of the Gulf of Mexico for $750 million in February, adding to the $3.75 billion in assets that it bought from Apache Corp. last year. There were five Gulf of Mexico deals worth $3.9 billion in the first quarter, compared to two in the same period last year.

The Gulf outpaced even the most active U.S. shale play, the Eagle Ford Shale in South Texas, which had five deals worth $3 billion in the first quarter. The Eagle Ford was followed by the Bakken Shale in North Dakota and the Permian Basin in West Texas, which each had three deals. The Bakken deals were valued at $863 million all together, while the Permian Basin deals were worth a combined $276 million.

Foreign buyers made 12 deals worth a combined $8.3 billion, about 42 percent of the deal activity in the U.S., the firm reported. That’s about twice the money the international companies paid for U.S. oil land in the first quarter of 2013.

For Big Oil companies hawking small or unprofitable property, “it’s all about maximizing shareholder value,” Meier said. Oil companies have generally taken two approaches: They’ll either reinvest their sale proceeds in more lucrative assets or they’ll boost dividends, he said.

“The common link of both if those strategies is to build shareholder value,” he said. “Clients are asking us to help them evaluate their strategic operations as to what’s core and what’s not core.”