US oil and gas deals surge in Q2

The PwC quarterly report shows US oil and gas deals increased significantly in the second quarter, helped by shale plays among companies trying to capitalize on the country’s energy revolution.

The second quarter saw significantly more US companies engaging in oil and gas mergers and acquisitions activity, thanks to ongoing interest from foreign and domestic buyers for divested assets, according to the latest quarterly report from PricewaterhouseCoopers (PwC).

That means the April to June period was the strongest second quarter in the past five years, it said.

During that period, the US oil and gas industry saw 54 oil and gas deals with values of more than $50 million, which accounted for $42.2 billion. In comparison, there were 47 such deals worth $30.3 billion in the second quarter of last year, the PwC report said.

On a sequential basis, deal volume in the second quarter of 2014 increased by 15 percent from the 47 deals in the first quarter of 2014, with total deal value increasing 131 percent from $18.3 billion in the first quarter of 2014. That brought the first half of this year to a total of 101 deals worth $60.5 billion.

“The first three months of 2014 set the stage for the strongest second quarter of oil and gas deal activity that we've seen in the last five years. Over the past three months, we continued to see companies looking to realign their portfolios and divest non-core assets, which provided opportunities for acquirers with cash and access to capital,” said Doug Meier, PwC's US energy sector deals leader.

For deals valued at over $50 million, asset transactions continued to dominate total deal volume during the second quarter of 2014 – 44 deals or 81 percent of total deal volume. Asset deal value reached $27.3 billion or 65 percent of total deal value for the second quarter of 2014. Corporate transactions represented 10 deals totalling $14.9 billion during the quarter, the report said.

Foreign buyers announced 15 deals in the second quarter of 2014, accounting for $8.5 billion in value, a significant increase over one deal worth $590 million during the same period last year. On a sequential basis, the number of foreign deals increased 50 percent from the 10 total deals in the first quarter of 2014 as total deal value also increased 98 percent.

There were 12 mega deals during the second quarter of 2014, representing $30.8 billion, or 73 percent of total deal value, driven by larger oil and gas companies divesting more valuable assets.

Upstream deals accounted for 61 percent of total deal activity in the second quarter of 2014 with 33 transactions representing $21.7 billion, or 51 percent of total second quarter deal value. There were 10 midstream deals that contributed $12.1 billion and seven downstream deals during the second quarter of 2014 added $7.5 billion. In comparison, 12 midstream deals worth $17.5 billion and five downstream deals worth $1.4 billion were done during the same period last year.

According to PwC, there were 21 deals with values greater than $50 million related to shale plays in the April to June period, with a total value of $20 billion or 47 percent of total deal value.

“In the second quarter, overall shale deal value jumped substantially reaching $20 billion, compared to $4.4 billion in the first quarter of 2014 and $7.7 billion during the second quarter of 2013,” said John Brady, a Houston-based partner with PwC's energy practice.

“The continued interest in shale plays is a testament to how companies and investors view the success of the unconventional landscape, especially as new technologies and methods come to fruition that increase speed and efficiency from the upstream and drilling process to transportation and bringing oil and gas to market.”

In the upstream sector, shale deals represented 17 transactions and accounted for $11 billion, or 51 percent of total upstream deal value in the second quarter of 2014. There were four midstream shale-related deals worth a total of $9 billion during the second quarter, an increase in volume and value from the two deals worth $210 million in the first quarter of 2013, it said.

The most active shale plays for M&A with values greater than $50 million during the second quarter include the Eagle Ford in Texas, which had six deals with a total value of $6.9 billion. The Niobrara and Permian plays come in second, with three deals each worth $432 million and $1.1 billion, respectively. The Marcellus Shale represented two deals worth $2.9 billion, while the Utica and Bakken Shales each generated one deal, the report said.

During the second quarter of 2014, master limited partnerships (MLPs) were involved in 19 transactions, representing about 35 percent of total deal activity in the quarter, consistent with recent historical levels.

Financial investors continued to show interest in the oil and gas industry with four transactions, totalling $7.7 billion during the second quarter of 2014, which was more than a 400 percent jump in deal value compared to the same time period in 2013.

“There was an increase in financial investor involvement in the second quarter focused on midstream divestitures evenly split between corporate and asset,” said Rob McCeney, PwC US energy & infrastructure deals partner.

“In the second half of 2014, we expect private equity to continue to monetize assets, but also pursue divested assets in the midstream and upstream space as they continue to look for opportunities to deploy capital,” McCeney said in the report.