THE level of global upstream oil and gas assets merger & acquisition activity was a little bit flat through early 2011.
Figures from energy consultancy firm Wood Mackenzie show that disclosed acquisitions in the first six months of this year were valued at just over $63billion, compared to well over $100billion in the second half of 2010.
Closer to home, however, recent weeks have seen deals being struck for North Sea assets. Apache has bought up the Beryl field and related assets from Mobil for £1.1billion, and Premier Oil has announced an agreed £221million bid for EnCore, upping its interests in the Catcher field and gaining a foothold in Cladhan.
Anadarko Petroleum has also reportedly appointed advisors recently, including CitiGroup and Morgan Stanley, to market certain of its Brazilian assets with a price tag of up to $5billion.
Faced with likely liabilities running into billions of dollars stemming from its involvement in the US Gulf of Mexico Macondo disaster, Anadarko will no doubt be keen to raise free capital from these assets and at the same time minimise ongoing responsibilities in terms of financial outlay for their future development costs.
As well as other oil majors, it is likely that such assets would be of particular interest to Asian National Oil Companies (NOCs).
I have previously commented within this column on the potential for BG to monetise its Brazilian assets in whole or in part, particularly following the recent upward revision in reserves estimates.
It may well be the case that BG is resolute in its intention to take these assets to production however, meaning that any third party wishing to acquire them would need to take out the business as a whole. Indeed, one story which re-surfaces periodically in the market is that the China National Offshore Oil Corporation (CNOOC) could be a stalker.
Acquisitions by NOCs (national oil corporations) in particular for the year to date are well down on last year, totalling around $5billion in the first half of 2011 compared to over $35billion for the full year 2010.
Inflationary pressures are a significant issue for Asian and emerging economies, with high input costs feeding directly into rising consumer prices, potentially leading to further wage push inflation.
Energy security is an item high on the agenda for many of these states, and the need to control spiralling energy deficits is vital. As such it seems highly unlikely that acquisition activity by NOC’s will remain subdued for any prolonged period.
Indeed KNOC (Korean National Oil Corporation), which bought out Dana Petroleum last year, has recently stated that it would look to resume its asset purchase programme in early course.
Research from JP Morgan suggests that if China, South Korea and India sought to buy reserves at a level sufficient simply to cover their expected annual increases in oil input deficits, then this could equate to a spend of some $30billion for the current year.
Rather than simply swallowing companies up whole along the lines of the KNOC/Dana deal, there could well be a trend towards joint ventures between NOC’s and independents.
This would allow the nationals to be more strategic and targeted in the assets they buy into; consider for example Tullow’s Lake Albert assets in Uganda, and the farm-in earlier this year by CNOOC, along with Total.
M&A activity in a number of sectors of the global economy may continue to be held up by credit constraints, creating an uncertain “deal or no deal” outlook.
In the energy space, however, the prevalence of NOCs give the upstream oil and gas sector a different dynamic.
These entities have significant sovereign wealth at their disposal, meaning that unlike Noel Edmonds TV show, no “banker” is needed.
NOCs have ambitious production targets and the financial firepower to aggressively grow assets by acquisition; a combination of factors likely to drive a resurgence in M&A activity into 2012.
David Barclay is divisional director at investment management and financial planning specialist Brewin Dolphin.
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