Hungry state-owned oil giants and a spike in conventional asset sales drove oil and gas producers’ deal activity to normal levels in the third quarter, a comeback after mergers and acquisitions dried up in the first half of 2013.
After a global decline in assets up for sale this year, upstream-sector sellers are coming back to market, and deals are hovering around the quarterly average clocked since 2007, according to a recent report from Houston research and advisory firm PLS Inc.
Worldwide oil and gas deals hit a combined $41.8 billion in the third quarter, a 59 percent climb over the second quarter. Still, that’s less than a third of the $138 billion upstream deals pulled in the fourth quarter last year, when the global oil and gas industry braced for the market impact of hundreds of billions in U.S. federal spending cuts and tax increases.
And it’s about 19 percent less than the sector garnered from deals in the same period last year.
But deals should rise above the norm in the fourth quarter: There’s about $135 billion in assets on the market worldwide, and foreign national oil companies have the appetite and the capital to make the last three months of the year a very active period, said Brian Lidsky, a managing director at PLS.
“The national oil companies are in a buying mode,” Lidsky said. “The end game is to secure energy supplies for Europe and Asia.”
Lidsky said the foreign oil behemoths are mostly looking for oil-oriented assets, as well as gas-related operations tied to liquefied natural gas projects.
China led Asian buyers and ate up about a quarter of the global market, purchasing $10.5 billion in assets in Kazakhstan, Egypt, Brazil and elsewhere, according to PLS. China National Petroleum Corp. booked the largest deal in the quarter when it bought a $5 billion stake in Kazakhstan assets from ConocoPhillips, the research firm reported.
In North America, independent exploration and production companies have spent more capital on developing the assets they fought for in a massive land grab a few years ago, spurred by technology that unlocked the nation’s shale reserves. It’s an expensive endeavor for a market focused on higher-cost hydraulic fracturing, and many producers have resorted to selling off conventional oil and gas assets and reinvesting in more lucrative operations in the Bakken, Eagle Ford and Marcellus shale plays, as well as the Permian Basin in West Texas, Lidsky said.
For example, Apache Corp. has sold $7.2 billion in assets this year, and is looking to redeploy the money to U.S. resource plays and other measures to shore up its balance sheet. The largest U.S. deal of the quarter came when Apache sold off $3.75 billion in Gulf of Mexico assets to a private equity-backed buyer, Fieldwood Energy LLC.
Overall, North American producers struck $15.9 billion in deals during the third quarter, up from $10.9 billion in the second quarter. The region led M&A activity globally, eating up 38 percent of the deal market in the third quarter. The fourth quarter should prove active for North America, as well, as there’s currently $17 billion on the market in the region, Lidsky said.
“We certainly expect companies to continue to shed legacy assets to accelerate their plans for 2014,” Lidsky said. “There’s plenty of capital sitting on the sidelines in private equity and the MLP space.”