HOUSTON — A drop in megadeals and midstream deals cut in half oil industry spending on mergers and acquisitions during the third quarter, even as foreign and private equity buyers went on the prowl again, according to a report Thursday by PricewaterhouseCoopers.
As the industry trims older, conventional drilling assets in favor of more lucrative shale plays, divestitures drove most of the $16.4 billion in oil and gas deals in the three months ended Sept. 30, a decline from $37.6 billion in merger-and-acquisition activity a year ago.
Oil and gas companies struck 43 deals in the third quarter, down two from the same period last year. The number of deals worth more than $1 billion sank to just three in the third quarter, worth a combined $6.4 billion, the lowest level in seven quarters. The average quarterly value of oil and gas megadeals over those seven quarters was $21.3 billion, according to PwC.
Foreign buyers and private equity players made elbow room at the deal table again after a lull this summer, focusing mostly on exploration and production assets, said Rob McCeney, the U.S. energy private equity deals leader for PwC, in a written statement.
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Those investors “continue to seek orphan businesses from corporate sellers,” McCeney said.
Asset divestitures made up $13.9 billion of the M&A volume in the third quarter, making up the bulk of deal activity in the third quarter, according to PwC. A massive U.S. land grab between 2007 and 2011 left many exploration and production companies with less capital to develop the more costly shale plays.
Now, corporate sellers are often looking to generate extra cash to invest in shale, or deliver capital back to shareholders through buybacks and dividends, said Doug Meier, PwC’s US energy sector deals leader, in an interview.
But shale acquisitions were hot, too. Roughly a third of the capital that buyers spent in the third quarter was aimed at shale assets. The Bakken Shale in North Dakota led the quarter with $1.8 billion in deals, followed closely by the Eagle Ford Shale in South Texas, which garnered $1.7 billion in deals.
Foreign buyers spent a combined $2.8 billion on nine deals in the third quarter, still a decline in value from the $4 billion in four deals struck last year, but a large jump in activity after just one foreign-buyer deal in the second quarter.
Often, international investors are looking for more than just investment returns: They want to soak up intangible assets like technological expertise and skilled labor from U.S. shale plays, and many have plans to export that overseas to develop assets in their own countries, Meier said.
Meanwhile, private equity-backed firms shook hands on $4.9 billion in six oil and gas deals during the quarter, up from $1.5 billion in the second quarter. Those players, agnostic on what assets they scoop up, look for the highest possible returns at the right price, even if the assets are not in the booming shale plays, Meier said.
Together, the foreign and private investors spent 47 percent of the deal capital in the third quarter.
“Obviously, the common denominator is economic returns,” Meier said.
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Top 10 deals of the US energy boom
Nati Harnik / AP
10. $9.2 billion
In March 2011, Berkshire Hathaway announced plans to buy Wickliffe, Ohio-based specialty chemicals company Lubrizol in an all-cash deal.
[photo: Warren Buffet, chairman and CEO of Berkshire Hathaway]
9. $9.3 billion
In June 2011, Dallas-based Energy Transfer Equity announced plans to buy Houston’s Southern Union Co. in a stock deal, creating one of the largest natural gas pipeline companies in U.S.
[photo: The Travis Tower, or 1300 Main, in downtown Houston was purchased by Dallas-based Energy Transfer Partners in August 2011.]
8. $10.2 billion
In April 2011, Exelon Corp. agreed to buy Constellation Energy Group Inc. in a stock deal led by CEO John
Rowe, then the longest-serving utility CEO in the country.
[photo: Then- Exelon Corp. CEO John Rowe]
Plains Exploration and Productio
7. $10.2 billion
In December 2012, global mining powerhouse Freeport-McMoRan Copper & Gold Inc. announced plans to buy Plains Exploration and Production Co. in a cash and stock deal, making a big and risky jump into the oil and gas business.
[photo: A Plains Exploration and Production Co. worker retrieves data from a well in the Inglewood oil field in Los Angeles.]
Isaac Brekken / Getty Images for National Clean
6. $10.4 billion
In May 2013, Berkshire Hathaway’s MidAmerican Energy utility announced plans to buy Nevada electric and natural gas company NV Energy in a cash deal that expanded the footprint of Warren Buffet's company in the energy sector.
[photo: NV Energy President and CEO Michael Yackira speaks during the National Clean Energy Summit 6.0 at the Mandalay Bay Convention Center on August 13, 2013 in Las Vegas, Nevada.]
TOM REEL / San Antonio Express-News
5. $12.3 billion
In February 2010, oil field services giant Schlumberger announced plans to buy Houston-based drill bits maker Smith International in an all-stock merger.
[photo: In 2012, Robert Drummond, President of Schlumberger North America, (left) talks about his company as Jeremy Aumaugher, South Division Operations Manager,listens.]
Jake Lacey / Jake Lacey
4. $14.9 billion
In July 2011, BHP Billiton announced plans to buy Petrohawk Energy Corp. in an all-cash deal that made the Australian company a bigger player in U.S. onshore energy production.
[photo: A Petrohawk Energy Co. drilling site at the Eagle Ford Shale in McMullen County, Texas.]
Nell Redmond / AP
3. $25.5 billion
In January 2011, Duke Energy Corp. announced plans to buy its North Carolina rival Progress Energy Inc. in a stock deal that would create one of the nation's largest utilities.
[photo: Duke Energy's Charlotte, N.C. corporate headquarters in Feb. 1, 2006]
2. $37.6 billion
In October 2011, Kinder Morgan announced plans to buy El Paso Corp., a Houston-based natural gas producer and pipeline owner in a cash and stock deal. The acquisition encountered regulatory challenges, but eventually created the nation's largest network of pipelines.
[photo: Rockie Express Pipeline]
Matt Nager / Bloomberg
1. $41.4 billion
In December 2009, Exxon Mobil announced plans to buy Fort Worth, Texas-based XTO Energy in a stock deal, making a major bet on the future of natural gas. Exxon Mobil is now the largest producer of natural gas in North America.
[photo: A flag flies otuside the headquarters building of XTO Energy Inc. in Fort Worth, Texas, U.S., on Monday, Dec. 14, 2009.]