American Oil and Gas Reporter - October 2015 - 137

picture benefits and costs of fossil fuels
and nuclear power. He draws on cuttingedge research and original insights to
offer an alternate perspective on the
energy debate, and shares eye-opening
thoughts into how fossil fuels and technology improve people's lives."
The membership luncheon also features
presentation of the Industry Chief Roughneck Award, Eshelman mentions. Sponsored by U.S. Steel, this lifetime achievement recognition has been presented at
IPAA's annual meeting since 1955.
Concurrent round-table sessions begin

at 2 p.m., Eshelman continues. Lee Fuller,
IPAA executive vice president, will address ways to get crude oil to market and
oil exports. An Environmental Protection
Agency update will feature Matt Kellogg,
IPAA general counsel, and Samantha
McDonald, IPAA director of government
relations.
The meeting of former IPAA chairmen
is set for 3:45 p.m. At the same time,
IPAA's Land and Royalty, Capital Markets, and Natural Gas committee sessions
will convene.
The annual meeting concludes with a

New Orleans jazz heritage reception at
5:30 p.m.
"We hope for a good turnout at this
important meeting for discussions of
mutual concerns and opportunities," Eshelman summarizes. "There is no better
way to learn about IPAA's legislative
efforts to build and protect member businesses."
For information, contact IPAA, 1201
15th Street NW, Suite 300, Washington,
D.C. 20005; phone 202-857-4722; or
visit www.ipaa.org.
r

M&A Activity To Increase In All Sectors
NEW YORK-Lower oil and natural
gas prices likely will lead to more deal
making through 2015 and into 2016, particularly in the upstream and oil field
service sectors, Deloitte Touche Tohmatsu
Limited predicts.
According to Deloitte's Center for
Energy Solutions, companies across all
industry sectors have been in a "wait and
see" holding pattern in light of forecasts
of a short-lived price downturn. Therefore,
organic adjustments to cost structures
and company activity levels largely had
been prioritized over portfolio actions in
the mergers and acquisitions market.
Deloitte's Oil & Gas M&A Report-
Adjusting to a New Reality evaluates the
number and value of deals announced in
the first half of 2015. The firm says the
data show a fairly modest level of new
deal activity. Additionally, with one exception, there has been a consistent downward trend in deal value since second
quarter 2014, coincident with the decline
in oil prices.
This is counterintuitive, Deloitte suggests, given the history of major mergers
that occurred at a time of low oil prices.
Upstream, Service Sectors
Although the overall value of upstream
oil and gas deals shows a sharp upturn in
the second quarter of 2015, Deloitte says
about half of overall deal value is attributable to the BG Group takeover by
Royal Dutch Shell, valued at $80 billion.
Without it, the firm remarks, overall
upstream activity in the second quarter
would have largely mirrored that of fourth
quarter 2014. Although this constitutes a
recovery from first quarter 2015, it also
supports the holding pattern perception.
Among the notable upstream deals to
which Deloitte points is Noble Energy's
acquisition of Rosetta Resources. Overall,
upstream deal activity was most prevalent
in North America, even at a reduced
level. "Not surprising, since the number

of players in the United States and Canada
opens greater opportunities for upstream
deals," Deloitte notes.
Looking ahead, the firm predicts M&A
activity will accelerate in the upstream
sector because:
* Financial institutions may not be
content to wait out the downturn, which
will force some highly-leveraged upstream
companies into bankruptcy and release
assets in post-bankruptcy restructuring.
* Corporate buyers and private equity
investors may want to secure good assets
at bargain valuations ahead of an upturn
in oil markets.
In the oil field service sector, Deloitte
suggests merger and acquisition activity
can provide opportunities for companies
to sharpen focus on business areas that
provide more sustained profitability.
Doing so, the firm says, can allow them
to sharpen their financial portfolios.
Notable oil field service deals include
Petrobras spinning off a number of offshore
platforms to Standard Chartered Bank for
a deal value of $3 billion in the second
quarter of 2015, the company says. Otherwise, it has been a relatively quiet quarter.
On the horizon, Deloitte forecasts
rising merger and acquisition activity for
oilfield service companies, suggesting:
* There will be continued asset rationalization and refocusing within companies, providing opportunity for dealmaking in assets and business lines.
* The Halliburton-Baker Hughes and
the Schlumberger-Cameron mergers mean
midtier and smaller companies may acquire divested service lines and find opportunities to acquire technology and intellectual property.
* There may be a miniwave of consolidation among midsize players looking
to bolster scale and/or competitiveness.
Midstream, Downstream
According to Deloitte, the number of
midstream deals in the second quarter

was slightly above the first quarter, and
overall is trending above the same period
in 2014. However, the value of most
2015 deals was quite low.
The firm does cite a pair of notable
deals: Hess' 50 percent share spinoff of its
Bakken midstream operations worth $2
billion; and Enterprise acquiring gathering
and processing assets worth $2 billion.
Additionally, Deloitte predicts deal
activity will continue increasing. "There
is uncertainty around new investment,"
the company comments. "So, consolidation
and asset rationalization likely will become
more prominent features in the midstream
sector, adding momentum to the wave of
deals over the next year."
Meanwhile, Deloitte assesses, the
downstream sector has not suffered from
weak crude prices, and instead has enjoyed
higher refining and marketing margins.
However, while global transactions in
the second quarter increased compared
with first quarter 2015, total deal value
declined. Overall, Deloitte says aggregate
activity in first half 2015 was lower than
first half 2014.
Downstream transactions have been
dominated by portfolio actions, Deloitte
adds. Also, major integrated operation
contractors are continuing their long-term
strategy of reducing exposure to fuels
distribution and marketing businesses.
Deloitte says its outlook for downstream merger and acquisition activity is
less clear. However, it says, activity likely
will continue, although not at the rate of
the other sectors, saying:
* Companies that wish to slim business lines and/or exit the sector may have
ongoing opportunities to divest assets at
attractive calculations to locally stronger
competitors.
* Companies with strategic imperatives to build more scale in the downstream
may find assets available.
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OCTOBER 2015 137

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