American Oil and Gas Reporter - February 2015 - 147

IHS Reports Strong 2014 M&A Activity
HOUSTON-Robust merger and acquisition activity in the first 10 months
of 2014 fueled an increase in the total
transaction value for global upstream oil
and gas M&A deals, which rose 23
percent to $173 billion relative to 2013,
according to IHS.
IHS says this rebound in 2014 transaction value is particularly noteworthy
after transaction value for global upstream
oil and gas M&A deals fell by almost
half during 2013, reaching $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 inventories of acquired
reserves, resources and acreage, IHS explains.
"The uncertainty caused by the severe
decline in oil prices during the final two
months of 2014 nearly brought deal activity to a standstill," acknowledges
Christopher Sheehan, director of energy
M&A research at IHS. "Buyers and sellers
are having difficulty reaching a consensus
because of the oil price tumble, which is
causing significant uncertainty for the
industry.
"However," he continues, "transformative acquisition opportunities typically
arise at the bottom of the crude price
cycle, so Repsol's late-year agreement to
acquire Talisman Energy may be the tip
of the iceberg for corporate consolidation,
if crude prices remain depressed throughout 2015. The deal may foreshadow
further consolidation in the oil and gas
industry."
Asian Involvement
Another significant change in 2014
upstream M&A activity, IHS says, was a
plunge in acquisitions by Asian and Caspian regional national oil companies. It
says Asian and Caspian regional NOCs
were buyers in half of the 10 largest
deals in 2013, but none of those companies
were buyers in the 10 largest deals in
2014. Seven of the 10 largest worldwide
deals involved North American-based exploration, drilling and production companies as either buyer or seller in transactions that each exceeded $2 billion,
IHS notes.
The value of overseas acquisitions by
Chinese NOCs fell steeply in 2014 to
less than $3 billion from $20 billion in
2013, but private Chinese financial and
industrial conglomerates emerged as more
active buyers in the global M&A market.
IHS adds that Chinese NOCs reached
large, forward-sale oil and gas supply

agreements worth tens of billions of
dollars with Russia, highlighting the
strengthening ties between Asian NOCs
and Russia as sanctions reduced Western
investment.
Western integrated oil companies, such
as Royal Dutch Shell, which divested
$15 billion in worldwide upstream assets
in 2014, were among the most active
global market sellers during the year,
IHS indicates. Meanwhile, Middle Eastern
NOCs increased their overseas acquisition
spending.
According to IHS, worldwide deal
count (which includes both asset deals
and corporate deals) rose 4 percent in
2014, but remained well below the 10year high in 2012. The number of worldwide asset transactions climbed by 4 percent in 2014, reversing the almost 10
percent decline in the prior year, IHS
says.
The corporate deal count rose only
marginally from the 10-year low in 2013.
Large-scale corporate consolidation was
relatively absent for the second consecutive
year, IHS reports, noting that only three
corporate transactions above $5 billion
occurred in 2014, including Repsol's
$15.5 billion takeover agreement for Talisman. Global spending on unconventional
assets in 2014 rebounded to $70 billion,
after plunging by nearly 50 percent in
2013 to $45 billion. However, IHS notes,
this total was almost 20 percent below
the peak of $85 billion in 2012.
North American Activity
The United States was home to nearly
50 percent of global upstream oil and
gas transaction value in 2014, IHS says.
Four of the top five largest U.S. deals
targeted unconventional resources, led
by Encana Corp.'s $7.8 billion acquisition
of privately held Midland Basin producer
Athlon Energy. IHS says total U.S. transaction value rose strongly from the fiveyear low in 2013, with corporate deal
value nearly quadrupling from a 10-year
low, while asset deal value increased by
one-third.
For the second consecutive year, the
majority of U.S. deal value was from
transactions in the Mid-Continent (29
percent), onshore Gulf Coast (16 percent),
and Rocky Mountain (22 percent) regions,
IHS observes. The company says deal
activity continued to be modest in the
Gulf of Mexico, with its U.S. market
share falling to 7 percent from 12 percent
in 2013. The percentage of U.S. deal
value represented by Appalachia, pre-

dominantly in the Marcellus and Utica
shales, more than doubled year-over-year,
to 16 percent.
IHS calculates that North America accounted for 60 percent of global upstream
deal value in 2014, up from 42 percent in
2013. Canada's market share climbed
from 7 percent to 13 percent, highlighted
by the Canadian assets included in Repsol's
acquisition of Talisman, and Devon Energy's $2.85 billion sale of conventional,
gas-weighted reserves to Canadian Natural
Resources, IHS notes.
Sheehan comments, "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 North American proved reserves acquired in 2014,
following a 10-year low in 2013. Deals
outside North America for proved plus
probable reserves were more than 60 percent oil and liquids for the third consecutive
year."
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
Russia and Caspian regions, impacted
considerably by Western sanctions, represented only 5 percent of global market
share in 2014, after comprising 25 percent
the prior year, IHS says. 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 Africa
and the Middle East because of heightened
political instability.
"Our analysis of upstream companies
indicates debt-laden oil and gas companies
that are not well hedged could increasingly
become takeover targets in 2015," Sheehan
says. "The volume of global assets for
sale could surge if oil prices remain depressed during the first half of the year."
Ì

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FEBRUARY 2015 147

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