www.pwc.co.uk/oilandgas Oil and Gas global deals Six months ended 31 December 2013 February 2014
Oil and Gas global deals report 2013 was a relatively quiet year for deal activity, but signs of life returned in the second half of the year. There is definitely momentum in the sector, given divestment announcements by majors such as Marathon and Shell and the completion in January 2014 of the acquisition of Coastal Energy plc by CEPSA and SRG. Many of the fundamentals that drive deal activity in the sector are in place, as a result of which I expect an improvement in the level of deal activity in 2014 (and beyond). Drew Stevenson UK Oil and Gas Transaction Services Leader Overview 2013 was a relatively quiet year for oil and gas deals the annual total of 776 deals was the second lowest level over the last five years, and the total value of deals of $196.6bn was the lowest seen in the same period. The second half of the year saw an increase in activity with 397 oil and gas deals totalling $104.3bn recorded (up 5% and 13% respectively on the preceding six months). This pickup in activity was evident across the majority of territories, with notable increases in North American and African deal volumes. However this stronger second half performance, which has become typical of this sector in recent years, was not as stark as in 2012 (and prior years). In the past, this has been driven by much larger mega deals such as the sale of TNK-BP for a combined $60bn. This drop off in the most recent quarters is clearly shown in our analysis of deal activity during 2013. There are, however, grounds for optimism in the sector: market confidence globally is generally positive; commodity prices are stable allowing investment in the sector; banks are in the market to lend; and the sector is being supported by a broad range of investors including IOC s, NOC s, Private Equity, Sovereign Wealth Funds and High Net Worth Investors that are active in the sector. This confidence is demonstrated through recently announced divestment plans (Shell and Marathon) and the potential for RWE to sell its upstream business, RWE Dea, which was announced in 2013. Upstream In the upstream sector, deal volumes rose by 10% in the second half, although there was a marked increase in total deal value, which was up 53% in the period. Upstream deals remain the powerhouse of M&A in the sector in H2 2013, representing 80% of all transactions, of which 84% are asset transactions with the remainder being corporate deals. The top ten deals in the period were all in upstream, which is the first time since we started our regular deal reviews that one sub-sector has secured all of the top 10 transactions in the period. Top billing went to two transactions relating to the Kashagan development in Kazakhstan, the most expensive oil project in the world. Both transactions were valued at $5.4bn and reflected a transfer of interests to China, with the sale of an 8.4% interest by ConocoPhillips to KazMunaiGas being followed by a similar sized investment in the field by CNPC. These transactions followed the announcement by ConocoPhillips in late 2012 of their intention to sell their Kashagan holding to ONGC of India. Investment from China was a key feature of deal activity, with the above transaction supplemented by a further three investments from China in the top 10. 2 Oil and Gas global deals PwC
In August 2013, China Petrochemical Corporation and Sinopec acquired a 33% stake in Apache s Egyptian assets, with the deal representing the first stage of a global strategic partnership between the companies. It was also further evidence of the appetite of Chinese buyers for African assets. This deal was followed in November by PetroChina s acquisition of the Peruvian assets of Petrobras, part of the near $10bn divestiture of foreign assets by the latter announced early in 2013. The final Chinese deal related to Sinochem s proposed acquisition of a 35% interest in the Parque de Conchas field in Brazil. This offer prompted Shell and ONGC to exercise pre-emption rights over the asset and highlighted competition between India and China for international resources. Midstream The midstream market saw a 77% decline in overall deal value between the first and second half of the year from $22.4bn to $5.1bn. This sector also recorded a 46% decline in deal volume from 28 deals in H1 2013 to 15 deals in H2 2013. This is partly due to a lack of notable large transactions such as those seen in H1 2013. This includes Royal Dutch Shell s purchase of LNG assets from Repsol SA for $6.7bn and Kinder Morgan Energy Partners LP s acquisition of Copano Energy, a provider of services to natural gas providers, for $4.6bn. However in the sector we continue to see increasing interest in midstream assets from infrastructure and similar funds and anticipate further deals in this sector in 2014, albeit potentially at continued lower levels of activity. Downstream and services Although deal value and volumes in the downstream sector were broadly flat, the oilfield services sector saw deal value increase by 17% from $6.6bn in H1 2013 to $7.7bn in H2 2013. This can be attributed to continuing interest from private equity investors and consolidation in the sector. The midstream, downstream and services sectors continue to be key areas for infrastructure and private equity funds and other institutional investors. These are trends we expect to continue into 2014. The latter half of 2013 has also brought profitability and valuation of the service sector into sharp focus, with share prices at a number of top tier companies coming under pressure. While share price movements are attributable to company specific factors, expectations of a slight softening of the oil price in 2014 and strict control of expenditure by operators mean that a degree of caution is prudent in the coming year. Looking ahead Although 2013 deal activity as a whole was lower than previous years we expect the improvement seen in H2 2013 to continue into 2014. A number of factors support this. Firstly, the fundamentals of the sector remain strong, with prices at levels that support investment in higher marginal cost developments, particularly for oil. Brent crude and Henry Hub Natural Gas price averaged $108.43 per boe and $21.82 per boe in 2013 softening in prices is unlikely to have a material impact on development projects. Secondly, divestiture programmes announced by companies such as Petrobras, Shell, Marathon and RWE will clearly lead to activity. It is possible that these asset sales will result in further investment from the Far East. Individual markets also offer specific opportunities such as the consolidation of European refining, the opening up of 3rd party investment in Mexico and the development of frontier exploration assets. Traditional drivers of activity such as the internalisation of technology and innovation in the sector will continue to drive activity. Upstream deals will continue to dominate in the sector (such as CEPSA/SRG s acquisition of Coastal Energy plc for $2bn in January 2014), however, we also expect to see more deals elsewhere in the sector, particularly in oilfield services. The development of shale in the UK and Europe will lead to longer term opportunities, although we re unlikely to see any material M&A transactions in the short term in European shale. As global economic conditions improve, financial investors appetite for deal activity remains strong, particularly in the upstream and oilfield service sectors. While top tier upstream financial investor deals have not been prevalent in the last twelve months, the high level of mid-tier deals demonstrates a healthy appetite for investment at all levels. PwC Oil and Gas global deals 3
Top global Oil and Gas deals in H2 2013 Top 10 deals (all upstream) Rank Target (s) Buyer(s) Seller(s) Territory Value ($bn) 1 8.33% of Kazakhstan's China National KazMunaiGas National Central Asia 5.4 Kashagan offshore oil project Petroleum Corporation Company 2 8.39% of Kazakhstan's Kashagan offshore oil project KazMunaiGas National Company 3 100% of Berry Petroleum Co Linn Energy, LLC Berry Petroleum Company 4 100% of Apache Corp.'s Gulf of Mexico shelf operation 5 33.33% of Apache's Egyptian oil and gas business 6 49% of ITERA Oil and Gas Company LLC 7 100% of Petrobras Energia Peru Fieldwood Energy, LLC & Riverstone Holdings LLC China Petrochemical Corporation and Sinopec Rosneft PetroChina Company Limited 8 100% of Petrominerales Ltd. Pacific Rubiales Energy Corp. 9 40% stake in Arctic Russia B.V. 10 35% of the heavy oil Block BC-10 known as Parque das Conchas ConocoPhillips Central Asia 5.4 North America 5.0 Apache Corporation North America 3.8 Apache Corporation Africa 3.1 ITERA Oil and Gas Company Petroleo Brasileiro SA Petrominerales Ltd. Former Soviet Union South and Central America South and Central America Rosneft Enel SpA Former Soviet Union Sinochem Corporation Petroleo Brasileiro SA South and Central America 2.9 2.6 1.8 1.8 1.5 Top midstream deals Rank Target (s) Buyer(s) Seller(s) Territory Value ($bn) 1 100% of TGGT Holdings LLC Azure Midstream BG Group plc & EXCO North America 0.9 Energy LP Resources, Inc. 2 100% of Arrow Midstream Holdings LLC 3 100% Trinidad and Tobago Holdings LLC Crestwood Midstream Partners LP National Gas Company of Trinidad and Tobago Limited Arrow Midstream Holdings, LLC ConocoPhillips North America 0.8 South and Central America 0.6 Top downstream deals Rank Target (s) Buyer(s) Seller(s) Territory Value ($bn) 1 100% PAA Natural Gas Plains All American PAA Natural Gas Storage, North America 0.9 Storage Pipeline LP L.P. 2 20 liquid petroleum products terminals in North America Buckeye Partners LP Hess Corporation North America 0.9 3 38.7% of Northern Tier Energy Western Refining ACON Investments Ltd & TPG Capital LP North America 0.8 Top oil equipment and services deals Rank Target (s) Buyer(s) Seller(s) Territory Value ($bn) 1 100% of Chemlogics Solvay S.A. Chemlogics Group LLC North America 1.3 2 100% of Sooner Inc. Marubeni-Itochu Tubulars America, Inc. Oil States International, Inc. North America 0.6 3 50% of Sevan Drilling ASA Seadrill Limited Sevan Drilling ASA International 0.6 4 Oil and Gas global deals PwC
Number and value of global deals by quarter Period Number Value ($bn) Average value ($bn) Q1 2009 144 62.3 0.43 Q2 2009 208 55.6 2009 total = 0.27 2009 total = 847 Q3 2009 244 42.2 0.17 Q4 2009 251 88.4 0.35 Q1 2010 213 88.1 0.41 Q2 2010 228 68.3 2010 total = 0.30 2010 total = 816 Q3 2010 180 121.2 0.67 Q4 2010 195 106.6 0.55 Q1 2011 161 73.5 0.46 Q2 2011 200 47.3 2011 total = 0.24 2011 total = 743 Q3 2011 169 74.1 0.44 Q4 2011 213 104.6 0.49 Q1 2012 193 63.7 0.33 Q2 2012 198 48.2 0.24 2012 total = 915 Q3 2012 241 85.7 0.36 Q4 2012 283 154.6 0.55 Q1 2013 179 46.9 0.26 Q2 2013 200 2013 total = 45.4 2013 total = 0.23 776 Q3 2013 213 57.2 0.27 Q4 2013 184 47.1 0.26 249 384 300 2012 total = 352 197 Last twelve months deal values on a quarterly basis Number of Deals 1,200 1,000 800 600 400 200 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 < $250m $250 - $1bn > $1bn Deal value 450 400 350 300 250 200 150 100 50 0 Deal value ($bn) PwC Oil and Gas global deals 5
4% 4% 1% 2013 Deal size by deal value 2013 Total number of deals H2 2013 Deal size H2 2013 Total number of deals H1 2013 Deal size 34% 17% 7% H1 2013 Total number of deals 4% 5% 6% 1% 2 55% 47% 3% 4% 4% 5% 59% 61% 19% < $250m $250 - $1bn > $1bn North America International Asia-Pacific Europe South and Central America Australia Former Soviet Union Africa Middle East 2013 Deal value by sector Share of top 20 upstream deals in 2013 by country of buyer H2 2013 Deal value by sector 3% 4% 3% 3% 6% 3% 5% 7% H1 2013 Deal value by sector 9% 46% 24% 61% 29% 81% China Canada Upstream Midstream Downstream Services Russia India Singapore Brazil Institutional Investors New Zealand 6 Oil and Gas global deals PwC
Global M&A volume by sector Deal volume 300 250 200 150 100 50 140 120 100 80 60 40 20 $ boe 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 Upstream Midstream Downstream Services Brent Crude Price Henry Hub Gas Price Global M&A activity by sector 117.9 130.6 156.4 227.8 120.8 178.7 111.9 240.3 92.3 104.3 Deal Value ($bn) 180.0 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 140 120 100 80 60 40 20 $ boe Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 Upstream Midstream Downstream Services Henry Hub Gas Price Brent Crude Price PwC Oil and Gas global deals 7
Contacts Drew Stevenson Tel: +44 (0)141 355 4110 Email: drew.stevenson@uk.pwc.com Alan Barr Tel: +44 (0)1224 253 181 Email: alan.barr@uk.pwc.com Richard Spilsbury Tel: +44 (0)1224 253 214 Email: richard.j.spilsbury@uk.pwc.com Neil Leppard Tel: +44 (0)20 7804 3168 Email: neil.leppard@uk.pwc.com Tony Skrzypecki Tel: +44 (0)20 7804 5500 Email: tony.skrzypecki@uk.pwc.com Jon Shelley Tel: +44 (0)1224 253 194 Email: jonathan.g.shelley@uk.pwc.com Alan McCrae Tel: +44 (0)20 7213 4004 Email: alan.h.mccrae@uk.pwc.com Robert Aitken Tel: +44 (0)1224 253 129 Email: robert.aitken@uk.pwc.com Susan Prior Tel: +44 (0)20 7804 9342 Email: susan.prior@uk.pwc.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2014 PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 140224-101253-NM-OS