A need for sizable investments to develop and transport new sources of energy is forging the way for an active oil and gas deal market in the United States and around the world, according to a report released Feb. 8 by the Deloitte Center for Energy Solutions.
Roger Ihne, principal, Deloitte Consulting LLP, provided an overall snapshot of how a resurgent North American energy market, buoyed by a plentiful supply of shale oil and gas, is stirring interest in mergers and acquisitions (M&A).
The M&A market has traditionally been driven by exploration and production (E&P) deals, Ihne said. However, that was not the case in 2011. E&P deals were down from robust 2010 models.
“But that was more than made up by a significant increase in the Midstream and all of the deals announced there -- and some very large deals in that area,” Ihne said at a Feb 8. news conference in Houston. “Two of the top three deals for 2011 were actually in the Midstream area, something that we could have never expected and certainly have never seen before. It shows how transformative the market and the industry have become.”
The deal market, after a slow start in the first half of 2011, picked up during the second half of year. In the last six months of 2011 total deal value jumped 29% to $155 billion, compared with $120 billion during the second half of 2010.
The number of deals finalized in 2011 declined to 240, compared with 258 in 2010.
Outside of shale-related activity, the study concluded that a major trend in 2011 was for integrated companies to initiate transactions that allow them to focus on their core businesses.
“We have seen some companies making divestitures in order to maximize shareholder value,” Jed Shreve, principal, Deloitte Financial Advisory Services LLP, said in the report. “Other traditional diversified companies are deciding to split their operations into separate companies, and we believe splits like these will continue to drive M&A activity and be part of a trend toward larger transactions.”
In 2011, the largest deal in the oil and gas industry took place in the midstream sector -- Exxon’s $41-billion acquisition of XTO, which created the largest natural gas pipeline network in the United States.
While the total midstream deal count for the second half of 2011 was roughly the same as the second half of 2011, several large deals pushed total deal value to $65.1 billion, compared with $5.4 billion during the last six months of the previous year.
“We’re seeing a new wave of midstream activity, which makes sense given the new challenges of getting resources to market in the U.S.,” Thomas said. “Because of the positions of the shale fields, we do not yet have a midstream infrastructure that fully supports the location of E&P activity.”
Key Midstream takeaways include:
- More than \•10 billion is required to fully develop America’s pipeline infrastructure to meet rising energy production from unconventionals.
- The need for infrastructure investment and ability to serve the changing needs of customers and producers is spurring M&A activity and consolidation in the midstream market.
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