Eoin Coyne
Evaluate Energy

GAIL Ltd. became the latest government-backed Asian company to join the US shale sector this week when it committed $95 million to acquire a 20% interest in 20,200 acres in the  Eagle Ford Shale play. After negating the assumed value of the production included with the asset, the cost per undeveloped acre equates to $17,000, representing the high liquids content of the Eagle Ford and also the inflated price that the Asian NOC’s seem willing to pay to enter into US shale agreements. Following this deal, Carrizo Oil & Gas entered into an acquisition in partnership with Avista Capital Partners to acquire 15,000 acres in the Utica Shale play for less than $1,500 per acre.

For the second week in a row, North Sea assets have featured heavily in the upstream M&A sector. Back in March 2011, when the UK budget announced an increase in the supplemental tax to 32%, there was widespread condemnation and threats of withdrawal from some senior companies within the industry. The UK Government however called the companies bluff, sticking to its tax proposal and now six months later, the region is again attracting major investments. 

This week, the deal in question is ENI’s $844 million acquisition of GDF SUEZ’s 10.4% interest in the Elgin and Franklin fields, which has followed on from Apache Corp.’s $1.75 billion acquisition of certain North Sea fields from ExxonMobil last week.

The acquisition metrics of these recent deals are not reflective of a region being strongly prohibited by tax constraints either. ENI paying just under $60,000, and Apache paying $45,000 per flowing boe indicates that big profits are still achievable due to the region’s strong infrastructure, support services and local market. In addition to the ENI deal, Bridge Energy also entered into a North Sea deal this week, which although at $38 million is dwarfed by ENI’s transaction, does represents a major deal for Bridge, a company with a market capitalisation of just $80 million. On an unadjusted basis, the deal looks reasonable at a cost per flowing boe of $48,000. Factor in however that the deal includes oil stock in tank worth an estimated $20 million, production is weighted strongly towards oil and that Bridge Energy will be able to use its accumulated tax losses to offset a portion of future taxes and the deal tips far more in favour of Bridge Energy. The market responded in kind to the news as the share price of Bridge Energy jumped close to 10% on the announcement of the deal.

There was a flurry of further deals in the United States with the largest coming from Kodiak Oil & Gas, who acquired 13,500 acres in the Williston basin for $235 million. NFR Energy acquired natural gas assets in East Texas from SandRidge Energy for $231 million. Antero Resources acquired a 7% royalty interest in 115,647 acres in the  Marcellus Shale from CONSOL Energy and PDC Energy and Lime Rock Partners jointly acquired 100,000 acres of land prospective for the Marcellus and Huron shale plays from National Grid Plc for $152.5 million.

In Canada, there were two deals involving oil sands properties in Alberta, with Oilsands Quest disposing of its Wallace Creek assets for $41 million and Alberta Oilsands Inc divesting its 50% interest in land within the Hangingstone/Halfway Creek area of Alberta for $27.7 million. Both assets are in a similar stage of development, with only contingent reserves being classified so far. Although the deals were separate, the acquisition metrics were near identical with the cost per contingent boe both rounding to 36¢, which strongly indicates the current valuation of early development oil sands assets.

Although the week bought positive news for Tullow Oil with a successful exploration well in Ghana, the company met further frustration in its proposed deal to divest a portion of its Ugandan exploration blocks to CNOOC and Total for $2.9 billion. The deal should have closed two weeks ago and had already overcome what was thought to be its largest hurdle, namely settling the tax dispute with the Ugandan government. The latest setback came as the president of Uganda, Yoweri Museveni, intervened personally after taking issue from a ‘stabilization’ clause, which could limit Uganda’s share of any future oil price rises. The deal is still expected to settle shortly, with Tullow Oil having already sent its counter offer to the government.

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