TORONTO (miningweekly.com) – Despite a late-year plunge in crude oil prices, robust merger and acquisition (M&A) activity in the first ten months fuelled an increase in the total transaction value for global upstream oil and gas M&A deals in 2014, which rose 23% to $173-billion, according to analysis from information and insight provider IHS.

The NYSE-listed analyst said this rebound in 2014 transaction value was particularly noteworthy for the industry after transaction value for global upstream oil and gas M&A deals fell by almost half during 2013 to $140-billion, the lowest level since the 2008 recession.

In 2013, rather than shopping for deals, oil and gas companies shifted their focus to developing their vast inventories of previously acquired reserves, resources and acreage.

“The uncertainty caused by the severe decline in oil prices during the final two months of 2014 nearly brought deal activity to a standstill. Buyers and sellers are having difficulty reaching a consensus because of the oil price tumble, which is causing significant uncertainty for the industry,” IHS director of energy M&A research Christopher Sheehan said.

He added, however, that transformative acquisition opportunities typically arose at the bottom of the crude price cycle, so Repsol’s late-year agreement to acquire Talisman Energy could be the “tip of the iceberg” for corporate consolidation if crude prices remained depressed throughout 2015.

“The deal may foreshadow further consolidation in the oil and gas industry,” Sheehan pointed out.

Another significant change in 2014 upstream M&A activity was a plunge in acquisitions by Asian and Caspian regional national oil companies (NOCs). Asian and Caspian regional NOCs were buyers in half of the ten largest deals in 2013, but none of these companies were buyers in the ten largest deals in 2014.

Seven of the ten largest worldwide deals involved North American-based exploration and production companies as either a buyer or seller in transactions that each exceeded $2-billion.

The value of overseas acquisitions by Chinese NOCs fell steeply in 2014 to less than $3-billion from $20-billion in 2013. However, private Chinese financial and industrial conglomerates emerged as more active buyers in the global M&A market. And the Chinese NOCs reached large, forward-sale oil and gas supply agreements worth tens of billions of dollars with Russia, highlighting the strengthening of ties between Asian NOCs and Russia as sanctions reduced western investment.

Western integrated oil companies, such as Royal Dutch Shell, which divested about $15-billion in worldwide upstream assets in 2014, were among the most active global market sellers during the year. Meanwhile, Middle Eastern NOCs increased their overseas acquisition spending.

According to IHS energy M&A research, the worldwide deal count (which included both asset deals and corporate deals) rose 4% in 2014, but remained well below the ten-year high in 2012. The number of worldwide asset transactions climbed by $4 in 2014, reversing the almost $10 decline in the prior year, IHS explained.

The corporate deal count rose only marginally from the ten-year low in 2013.

Large-scale corporate consolidation was relatively absent for the second consecutive year, with only three corporate transactions above $5-billion in 2014, including Repsol’s $15.5-billion takeover agreement for Talisman.

Global spending on unconventional assets in 2014 increased substantially to more than $70-billion, after plunging by nearly 50% in 2013 to about $45-billion. However, this total was almost 20% below the peak of $85-billion in 2012.

US STRENGTH

According to IHS, the US represented nearly half the total global upstream oil and gas transaction value last year. Four of the top-five largest US deals targeted unconventional resources, led by Encana’s $7.8-billion acquisition of Midland basin private producer, Athlon Energy.

The total US transaction value rose strongly from the five-year low in 2013, with corporate deal value nearly quadrupling from a ten-year low, while asset deal value increased by one-third.

For the second consecutive year, the majority of US deal value was from transactions in the Mid-Continent (29%), onshore Gulf Coast (16%) and Rocky Mountain (22%) regions. Deal activity continued to be modest in the Gulf Mexico, with its US market share falling to 7% in 2014, from 12% in 2013.

The percentage of US deal value represented by Appalachia, predominantly in the Marcellus and Utica shales, more than doubled year-over-year, to 16%. Only three of the ten largest US deals targeted conventional resources.

IHS found that North America accounted for about 60% of global upstream deal value in 2014, up from 42% in 2013.

Canada’s market share climbed from 7% to 13%, highlighted by Talisman’s portion of Canadian assets and Devon Energy’s $2.85-billion sale of conventional, gas-weighted reserves to Canadian Natural Resources.

“Bargain hunters taking advantage of low implied values for North American gas asset-divestment packages drove a significant increase in the natural gas weighting of acquired North American proved reserves in 2014, following a ten-year low in 2013. Deals outside North America for proved plus probable reserves were more than 60% oil and liquids for the third consecutive year,” said Sheehan.

Transactions outside North America dominated the top-20 largest global deals in 2013, but accounted for slightly less than half of the top 20 in 2014. The Russian and Caspian regions, impacted considerably by western sanctions, represented only 5% of global market share in 2014, after comprising about 25% the prior year.

The percentage of global deal value more than doubled in the Asia-Pacific region, while it held steady in Europe and South and Central America, but declined sharply in the Africa and Middle East regions because of heightened political instability.

“Our IHS analysis of upstream companies indicates debt-laden oil and gas companies that are not well hedged could increasingly become takeover targets in 2015,” Sheehan stressed.

“The volume of global assets for sale could surge if oil prices continue to remain depressed during the first half of the year. Our new IHS Significant Energy Assets on the Market database, which is available on IHS Connect, is already tracking more than $150-billion of oil and gas property and corporate opportunities, and those opportunities are likely to expand,” he added.