WoodMac: Strong Upstream M&A Activity Forecast in 2011

by Paula Dittrick, OGJ, Jan 26, 2011
Keen interest in shale plays is expected to propel strong upstream merger and acquisition activity this year, said Wood Mackenzie Ltd. analysts.

Restructuring among international oil companies and aggressive spending by Asian national oil companies (NOCs) also is expected to drive active M&A levels.

WoodMac�s report �2010 in Review and the Outlook for 2011� showed $183 billion was spent on upstream M&A deals last year. US shale gas transactions reached $39 billion, or 21% of global activity, said the independent research firm of Edinburgh.

�The M&A market returned to peak levels in 2010, and the healthy deal activity at the end of the year bodes well for 2011,� said Luke Parker, manager of WoodMac�s M&A research.

Unconventional oil and gas asset deals primarily drove 2010 M&A activity, Parker said.

Twenty transactions in the $1-5 billion range underpinned the M&A market during 2010, marking a contrast with 2009 when upstream transactions spiked on two corporate deals: the mergers of ExxonMobil Corp. with XTO Inc. and Suncor Energy with Petro-Canada.

Parker said weakness of US gas prices caused investors to increasingly shift their focus towards liquids-rich shale gas plays.

For instance, industry ended 2010 with a flurry of shale oil transactions involving the Bakken play in North Dakota, where transactions are expected this year.

�In the last 2 months of 2010, there were four $1 billion-plus Bakken deals announced, pushing cumulative M&A spend in North American tight oil beyond $15 billion,� Parker said.

He noted some 2010 M&A trends by peer group.

�At a global level, the NOCs were net buyers, and the IOCs were net sellers in 2010,� Parker said. �The NOCs were almost exclusively acquisitive.�

Chinese NOCs, together with the Korean National Oil Co. and PTTEP [the Thai NOC], invested $35 billion on overseas acquisitions.

�This pushed total NOC cross-border spend as a proportion of global M&A to 19%, marking the sixth successive year in which the NOCs have increased their share of the market,� WoodMac said.

Among the IOCs, Chevron Corp., Royal Dutch Shell PLC, and Total SA made a notable return to acquisitions in 2010, while Statoil and ConocoPhillips were notable sellers, Parker said. [Full story]

(US supermajor ExxonMobil completed its deal to buy US unconventional player XTO Energy in mid-2010---the deal was approved by XTO's shareholders on June 25, 2010 -- D.R. Wood Mackenzie's report---press release---is also available on its website here -- D.R.)