European oil&gas asset deals back on the rise in 2007

THE value of oil & gas asset deals in Europe climbed above $5.5billion in 2007 after two straight years of decline, driven by a rise in both corporate and asset deal value. Total deal count was flat for the third consecutive year and four of the top eight buyers in Europe were state-owned or controlled, according to analysis by John S. Herold, Inc. and Harrison Lovegrove & Co.

While Europe’s percentage of worldwide asset transaction value more than doubled to 3.6%, performance remained below the five-year average. Compare this with the US upstream merger and acquisition (M&A) total transaction value of $49.2billion on 145 significant deals.

Indeed, the US accounted for 32% of the $154billion in total global upstream transaction value recorded by Herold/Harrison Lovegrove – about 5% higher than the five-year average.

Majors and larger independents continued to trim non-core assets, as Shell, ExxonMobil, ConocoPhillips, Talisman and Canadian Natural Resources were all sellers in 2007. Buyers included E.ON, Centrica, Polish gas company PGNiG and DONG Energy. A number of deals gestated during 2007 but not completed until 2008 are not included in the figures.

Other than state-controlled companies, most of the remaining buyers were small and mid-cap companies.

Consolidation continued among Norwegian E&Ps in a market dominated by StatoilHydro as Pertra merged with NOIL. The global acquisition drive by Abu Dhabi-based TAQA included its second North Sea deal in the past two years, a $550million purchase of non-operated UK North Sea Brae interests from Talisman.

A little more detail on the deals: “2P” transacted reserves climbed back above 400million barrels oil equivalent in 2007, with gas reserves exceeding oil reserves for the first time in the five-year study period. “1P” deal pricing rose for the third consecutive year, while 2P pricing per boe dipped from record levels on lower pricing for gas-weighted deals.

Not reflected in regional deal value are farm-ins, acreage acquisitions and purchases under $10million, or with no disclosed financial terms, significant segments of the European M&A market (about 10 times the reserve acquisition deal count in the study) and activity that increased substantially in 2007. Weighted average 1P deal prices climbed nearly 50% to $24.54 per barrel oil equivalent, up fivefold since 2004, while 2P deal prices drifted down from the 2006 record high to $10.23 per boe.

Pricing for 2P reserves acquired through corporate deals diverged from asset deals for the first time in five years, led by Noreco’s $1.1billion corporate acquisition of Altinex, a Norwegian E&P company with assets in Norway, Denmark and the UK.