$21 Billion of Oil and Gas Deals Announced Third Quarter 2009
PLS, Inc. and Derrick Petroleum Services Report U.S. and Canada E&P Deal
Momentum Increasing
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<p><location>HOUSTON</location>, <chron>Oct. 1</chron> /CNW/ -- PLS, Inc. ("PLS") in conjunction with its international partner Derrick Petroleum Services ("Derrick") reports that Global M&A activity for the 3rd Quarter 2009 totaled nearly <money>$21 billion</money> in 112 separate transactions. According to Brian Lidsky, Managing Director of Research at PLS, Inc., "Oil and gas deal volume increased markedly beginning in late <chron>August 2009</chron> due to a confluence of events. These include: 1) a growing consensus that the economy bottomed in the 2nd quarter 2009 and a recovery is under way, 2) price stability of oil in the <money>$65 - $75</money> per barrel range, and 3) a dramatic drop of U.S. natural gas prices in late August - early September towards the <money>$2.50</money> range that signaled a buying opportunity to the U.S. markets. For perspective, the oil and gas forward 12-month strips at 3rd Quarter 2009 end were <money>$73.00</money> per barrel and <money>$5.93</money> per mcf (thousand cubic feet) versus year ago numbers of <money>$99.02</money> per barrel and <money>$8.15</money> per mcf."</p>
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<p><location>Canada</location> led the world in oil and gas transactions (see Table 1) with total deal volume of <money>$6.9 billion</money> in 35 deals and was home to the two largest deals of the quarter. The largest global deal of the quarter is the <money>$2.5 billion</money> merger of Petrobank Energy and Resources and TriStar Oil and Gas Ltd. which went off at a value of <money>$27.79</money> per barrel of oil equivalent ("BOE") of proved reserves. This strategic merger was driven primarily to form a premier, Bakken-focused light oil and gas E&P company -- newly named PetroBakken Energy Ltd. -- which will provide investors a focus on the unconventional Bakken shale play (which straddles both sides of the U.S. and <location>Canada</location> border) on the Canadian side in southeast Saskatchewan and plus significant upside in the emerging Big Horn and Montney unconventional gas shale plays of northeastern British Columbia. The second largest deal is also an unconventional play in <location>Canada</location>. PetroChina International Investment Limited paid <money>$1.7 billion</money> to acquire a 60% working interest in Athabasca Oil Sands Corporation's ("AOSC") MacKay River and <location>Dover</location> in-situ oil sands projects. Recent independent assessments estimate five billion barrels of bitumen resources for the projects with regulatory approval expected in late 2009 for the first 35,000 b/d phase MacKay River commercial project.</p>
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Table 1
Global Oil and Gas M&A Deals - Third Quarter 2009
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Deal Number
Value of
Continent Country (US$ MM) Deals
United States $4,394 45
Canada $6,904 35
North America Sub Total $11,298 80
Argentina $2 1
Venezuela $185 1
South America Sub Total $187 2
Netherlands $404 1
Norway $138 2
Turkey $8 1
United Kingdom $1,785 2
Europe Sub Total $2,335 6
Australia $767 5
Papua New Guinea $60 1
Australia Sub Total $827 6
Angola $1,300 1
Egypt $13 1
Kenya $6 1
Libya $295 1
Namibia $3 1
Syria $829 1
Tanzania $2 1
Africa Sub Total $2,447 7
China $417 2
Indonesia $7 1
Kazakhstan $2,124 3
Russia $4 1
Turkmenistan $1,187 1
Ukraine $7 1
Vietnam $77 2
Asia Sub Total $3,822 11
TOTAL $20,916 112
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Source: PLS, Inc. and Derrick Petroleum Services
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<p>According to Lidsky, "The Canadian markets caught fire in late August due to valuations and a re-emergence of the mid-tier E&P sector which had been taken out by acquisitions earlier in the decade due to favorable tax treatment of the Royalty Trusts. When the rules changed overnight and with the <chron>January 1, 2011</chron> deadline removing this favorable treatment rapidly approaching, companies are strategically positioning themselves to succeed under these new rules. Royalty Trusts, once acquirers and distributors of cash flow, now are focused on traditional E&P company strategies - growth in underlying asset values via profitable exploration and drilling and growth. Also propelling the Canadian markets is the stability of the oil price and the continued interest and investment of the international companies in Canada's world class oil sands and emerging shale plays."</p>
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<p>Globally, the <location>United States</location> ranked as the second most active country in terms of deal value with <money>$4.4 billion</money> deals announced in 45 separate transactions. Regionally, Asia ranked second to <location>North America</location> with 11 deals totaling <money>$3.8 billion</money> -- primarily in <location>Kazakhstan</location> and <location>Turkmenistan</location>. Elsewhere, <location>Africa</location> scored 7 deals for <money>$2.4 billion</money> and just edged out <location>Europe</location> which inked 6 deals for <money>$2.3 billion</money>. <location>Australia</location> remains a politically and geologically favorable area for investment and accounted for 6 deals for <money>$827 million</money>. Despite the success offshore <location>Brazil</location>, <location>South America</location> deal activity lagged the world with only 2 deals for <money>$187 million</money>.</p>
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United States -- Third Quarter 2009 E&P Mergers and Acquisitions
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<p>In the <location>United States</location>, deal activity also continued to rebound from the virtual standstill experienced in the 1st Quarter 2009 (see Table 2) coming in at <money>$4.4 billion</money> with 45 deals. The pace, however, still lagged the fever pace of a year ago when <money>$14.3 billion</money> of deals in 66 transactions were signed in the 3rd Quarter 2008.</p>
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Table 2
United States E&P Mergers and Acquisitions Recover
from Q1 2009 Low
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Q3 Q4 Q1 Q2 Q3
2008 2008 2009 2009 2009
No. of Deals 66 36 22 50 45
Deal Value $14,355 $6,242 $429 $4,565 $4,394
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Source: PLS, Inc. and Derrick Petroleum Services
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<p>According to Lidsky, "Deal activity in the U.S. has heightened considerably with private buyers stepping up to the plate. Regarding conventional plays, investor interest is high in oil producing assets as noted by the surge of activity in the Permian basin of Texas and New <location>Mexico</location>. Unconventional shale gas plays are also very active with Canadian and European investors partnering with solid U.S. operators to leverage operating expertise in these highly technical plays."</p>
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<p>In terms of valuations in the U.S., oil and gas proved reserves changed hands at <money>$9.83</money> per BOE (barrel of oil equivalent) and <money>$70,986</money> per flowing daily BOE in the 3rd quarter (see Table 3).</p>
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Table 3
U.S. Valuation Metrics - Third Quarter 2009
Conventional Deals
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Deal Proved Production
Deal Value Reserves Value R/P Oil
Count (US$ MM) ($/BOE) ($/daily BOE) (Years) (%)
Region
Permian Basin 7 $1,351 $9.29 $80,712 24 70%
Mid-Continent 4 $1,033 $10.13 $61,079 16 13%
Gulf Coast
Onshore 3 $56 $11.10 $58,646 14 8%
Rocky
Mountains 1 $582 $11.81 $76,579 18 94%
Eastern U.S. 1 $145 $7.14 $60,216 23 9%
Total 16 $3,168 $9.83 $70,986 20 51%
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Source: PLS, Inc. and Derrick Petroleum Services
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<p>The largest conventional deals were all corporate takeovers - all by private firms. The largest deal was Hicks Acquisition Co.'s <money>$582 million</money> purchase of Resolute Natural Resources with assets in the <person>Rocky Mountain</person> region. Hicks, headed by Thomas O. Hicks, raised capital as a special purpose acquisition company and will use this transaction to take the company public. In another private company move, Apollo Management bought publicly traded Parallel Petroleum for <money>$495 million</money>. Apollo's move came on the heels of its unsuccessful effort to acquire another Permian basin player, Legacy Reserves.</p>
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<p>In terms of the forward looking markets, the inventory of deals available remains high. PLS, Inc. currently has data for 172 offerings from oil and gas brokers as well as an additional 1,100 investment opportunities for drilling ventures, producing properties, overrides and leasing in its listing database. Derrick Petroleum has also catalogued 179 deals available internationally.</p>
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<p>PLS, Inc. and Derrick Petroleum Services are partners in providing U.S., Canadian and International clients leading M&A and E&P databases and services. These databases are maintained 24/7 by a team of analysts and are accessible via the web to clients.</p>
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<p>PLS, Inc. is a leading industry research and transactions firm based in <location>Houston</location>, Texas. PLS, Inc. provides clients with timely research, transaction services for E&P assets and financial advisory services.</p>
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<p>Derrick Petroleum Services is an independent oil and gas research and consulting firm. Derrick's databases have worldwide coverage, with special emphasis on emerging plays and transactions internationally.</p>
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For further information: Media, Brian Lidsky, +1-713-650-1212, [email protected], or for further inquiries or to access and subscribe to the M&A database Web Site: http://www.plsx.com
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