US oil and gas M&A at $39 billion

Merger and acquisition (M&A) activity in the oil and gas sector registered a rise in average deal value, according to a PricewaterhouseCoopers (PwC) report

Average M&A deal value this quarter rose 13.8% to $765 million, up from $672 million during the same period last year. This is despite the fact that total volume and total value for deals above $50 million have dropped in Q2 2011 by 4.9% to $39 billion, compared to $41 billion in Q2 2010. PwC's analysis highlighted that interest in shale acreage, midstream assets and foreign investors have been the key drivers behind M&A activity during the past quarter.

Shale gas assets are currently highly sought after by multinationals looking to invest in long-term energy demand. The development of natural gas infrastructure and higher oil prices are making investments in US shale assets all the more attractive. According to PwC, out of the 10 biggest value deals completed in Q2 2011, seven were shale related.

Midstream assets have also been popular this quarter, with three out of the top 10 deals related to the midstream and oil-field services space. When comparing deals with a value of more than $50 million, it is clear that there has also been a sharp increase in the quantity and value of deals related to midstream, the report says. Last year, six deals accounted for $3.4 billion dollars, while this year the figure has risen to 11 deals totalling $19.9 billion.

Non-US buyers have also had a major impact on M&A this quarter by contributing $36.2 billion from 18 deals, significantly higher than the 27 deals totalling $24.2 billion in the same period last year, the report says.

"There continues to be steady M&A activity in the oil and gas sector with strong competition for prized assets, which has maintained the deal momentum throughout the first half of the year," says Rick Roberge, principal at PwC's energy M&A division. "Foreign and private equity interest in North American oil and gas assets remains very high and will likely be a driver of ongoing activity," he says.  

According to PwC, a significant factor leading towards deal activity throughout the year will be the splitting of integrated oil companies to realise shareholder value. Roberge advises such deals are conducted with great caution. "These are highly complex transactions with potential consequences around tax considerations, valuations and financial reporting. Companies should consider the risk with these types of transactions as every potential scenario needs to be thoroughly and diligently evaluated to succeed," he says.