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    Oil & Gas M&A in upstream sector reaches $51.3B in Q214

    Mark Young, Evaluate Energy

    Following a lacklustre first quarter for M&A activity in the oil and gas upstream sector, the second quarter of 2014 saw a spectacular rebound according to anaysis from Evaluate Energy. The total upstream deal value of US$51.3 billion is the highest single quarter total since 2012.

    Quarterly upstream deal value by deal type 2012-2014 

     

    Source: Evaluate Energy M&A Database

    The majority of the increase in global upstream deal activity is attributable to companies and assets based in North America, where the total value of upstream deals announced increased for the fourth quarter in a row. Deals to acquire North American upstream assets or businesses made up 47% of the total deal value (US$24.3 billion) in the second quarter of 2014.

     

    Source: Evaluate Energy M&A Database

    American Energy Partners LP continues with Utica acquisitions

    Acquisitions by North American companies also made up 47% of the quarterly total upstream deal value. Amongst the biggest-spending North American companies this quarter was the Aubrey K. McClendon-led American Energy Partners LP (AELP), which made large acquisitions in the prolific Permian Basin (US$2.5 billion) and the Marcellus and Utica shale plays (US$1.75 billion) in early June. McClendon was an early champion of the Utica shale in his Chesapeake Energy days and the acquisition continues to show that his faith in the play's potential has not wavered; this US$1.75 billion deal was AELP’s fourth acquisition this year to include a position in the Utica shale.

    Apache, Devon, Encana & Freeport-McMoRan streamline North American positions

    On the whole, AELP’s activity was a rare case as most other acquisitions in the quarter of this size were accompanied by a similarly-sized sale of assets elsewhere; it seems many North American companies are focused on streamlining positions rather than making large acreage gains like AELP. The motivation behind this streamlining of strategies will most likely be high North American production costs as well as low gas prices that have caused major rethinks for many companies trying to keep netbacks in line with shareholder expectations.

    Apache Corp., Devon Energy, Encana Corp. and Freeport-McMoRan Copper & Gold Inc. (FCX) are four big North American companies who conducted the highest profile restructurings within the region this quarter.

    Apache continued its US$4 billion divestiture plan to aid debt repayment and share buybacks by completing the US$1.4 billion sale of the Lucius and Heidelberg Gulf of Mexico shelf prospects to FCX and entities exercising pre-emptive rights over the assets. FCX had originally agreed to acquire the full stakes held by Apache in the assets but eventually ended up contributing US$919 million of the US$1.4 billion Apache received in consideration. This acquisition by FCX was funded by the biggest single deal of the second quarter, an agreement to sell 45,500 acres and 59 million barrels of proved reserves in the Eagle Ford shale to Encana for US$3.1 billion. FCX – having increased its focus on the Gulf of Mexico - will use the rest of the proceeds from this sale to redeem $1.7 billion in senior notes. In turn, Encana made a couple of sales of its own to fund this Eagle Ford acquisition. In April, the company agreed to sell some East Texas assets for approximately US$486 million and then in June, Apollo Global Management LLC – a New York-based private equity investor – acquired the company’s Bighorn Alberta Deep basin assets in Canada for US$1.8 billion.

    Devon completed the majority of its own restructuring plan last quarter, completing the biggest deal of 2013 to finalise its entry into the Eagle Ford shale for US$6 billion, as well as announcing the sale of non-core assets in Canada to CNRL for US$2.9 billion. The final piece of the company’s restructuring jigsaw – a US$2.3 billion deal that will see Linn Energy acquire Devon’s non-core onshore assets - was announced on the very last day of the second quarter. Once this final deal is complete, the restructuring process for Devon will be over and it is hard to argue that it has not gone well; the company now has a premier position in one of the US’ most attractive shale plays, lucrative oil and condensates will have risen to form 60% of the company’s oil & gas production by year end and net debt will have been reduced by US$4 billion.

    Outside of North America, further large restructuring operations took place this quarter and amongst the highest profile of these was Hess Corp’s latest deal on its way to becoming a single-resource play company. Hess agreed to sell its Thai business to state-backed PTTEP for US$1 billion. In Chad, Chevron decided to sell its 25% stake in producing assets and a pipeline to the Central African country’s government for US$1.3 billion. These deals made up the majority of the total state-backed deal value this quarter, as state-backed entities have had a very quiet 2014 with only US$3.2 billion of deals in the second quarter after a first quarter total of US$1.8 billion – in Q3 and Q4 2013 state-backed companies were involved in nearly US$25 billion of upstream deals combined.

    Investment firms active in Q2 2014

    Apollo Global Management was not the only investment firm to be active in the upstream M&A arena in the second quarter. Morgan Stanley completed Repsol’s exit from Argentina by acquiring the final 11.86% stake in YPF SA held by the Spanish major for US$1.4 billion including debt, whilst various investment firms were involved in the combined US$3 billion acquisition of a 9.5% stake in Australia’s Woodside Petroleum from Royal Dutch Shell. This willingness of private investment firms to buy interests in global E&P assets speaks volumes for the confidence held in the sector right now, despite ever-climbing operational costs seeming to hinder the profit-making abilities of upstream companies worldwide.

    Top 10 Upstream Deals in Q2 2014

    Acquirer

    Target

    Target Country

    Brief Description

    Total Acquisition Cost (US$000s)

    Encana Corporation

    Freeport-McMoRan Oil & Gas LLC and PXP Producing Company LLC

    United States

    Encana acquires 45,500 net Eagle Ford acres in heart of the oil-rich portion of the play

            3,100,000

    Various Investment Firms

    A 9.5% stake in Woodside Petroleum from Royal Dutch Shell

    Australia

    Royal Dutch Shell plc disposes 9.5% of its share in Woodside Petroleum Limited to a range of equity market investors

            2,985,653

    Woodside Petroleum

    A 9.5% stake in Woodside Petroleum from Royal Dutch Shell

    Australia

    Woodside Petroleum Limited buys back 9.5% of its own shares from Royal Dutch Shell plc

            2,679,965

    Det Norske

    Marathon Oil Norge AS

    Norway

    Det Norske Oljeselskap ASA acquires Marathon Oil's wholly owned subsidiary, Marathon Oil Norge AS

            2,661,049

    American Energy Partners, LP

    Enduring Resources, LLC

    United States

    American Energy Partners, LP, through its subsidiary American Energy – Permian Basin, LLC, acquires approximately 63,000 net acres from Enduring Resources, LLC

            2,500,000

    Linn Energy

    Devon Energy Corporation

    United States

    Linn Energy acquires Devon's non-core US oil and gas properties in the Rockies, onshore Gulf Coast and Mid-Continent regions

            2,300,000

    Al Mirqab Capital SPC

    Heritage Oil Plc

    Various

    Energy Investments Global Ltd, a wholly-owned subsidiary of Al Mirqab Capital SPC makes a cash offer to acquire Heritage Oil Plc

            1,874,737

    Apollo Global Management, LLC

    EnCana Corporation

    Canada

    Jupiter Resources, held by Apollo Global Management, acquires Encana's Bighorn assets in the Alberta Deep Basin

            1,800,000

    American Energy Partners, LP

    East Resources, Inc. and an unnamed private company

    United States

    American Energy Partners, LP (through subsidiaries) acquires approximately 75,000 net acres in the Marcellus and Utica shale plays from East Resources, Inc. and an unnamed private company

            1,750,000

    Glencore Xstrata plc

    Caracal Energy Inc.

    Chad

    Glencore Xstrata plc acquires Caracal Energy Inc.

            1,633,094

     

     

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