$1.7 billion oil sands deal is month's largest

Again this month, large international deals dominate the M&A space. Last month, it was BP's sale of its Argentina assets to Bridas Corp. and CNOOC for $7.1 billion. For the 30-day period from mid-December to mid-January, the single largest deal was the strategic alliance between Canada's Suncor Energy and Total E&P Canada Ltd. in the Canadian oil sands.

Although this is a fairly complicated partnership arrangement involving four separate but related transactions, Total will end up paying Suncor about $1.74 billion for a greater asset position in the Athabasca oil sands region of Alberta, and the two companies have also agreed to a joint commitment to develop the Fort Hills and Voyageur projects in parallel so that both come on stream in 2016. In short, it appears that Total is betting that the price of oil remains sufficiently high so that these oil sands projects remain economically viable. Total, like other super majors, has the deep pockets to spend on projects that will not see a return on investment for years to come.

In the United States, the two largest deals were Petrohawk Energy's sale of its upstream and midstream assets in the Fayetteville Shale to XTO Energy, a subsidiary of ExxonMobil, and Anglo-Suisse Offshore's sale of some of its Gulf of Mexico assets to New Orleans-based Energy Partners Ltd.

In the Petrohawk deal, the company sold its natural gas assets in Cleburne and Van Buren counties (Arkansas) to XTO for $575 million. Although announced on Dec. 23, the sale had an effective date of Oct. 1, 2010. In addition, Petrohawk entered into an agreement with XTO to sell its midstream assets in the Fayetteville Shale for $75 million. The portion of the transaction involving the midstream assets is expected to close in early 2011 and is subject to regulatory approval and customary closing conditions. In all the deals totaled about $650 million.

On Jan. 13, Energy Partners agreed to acquire oil and natural gas assets from Anglo-Suisse Offshore Partners, a privately held US company, for $201.5 million. The assets are located in the central Gulf of Mexico and currently produce about 3,000 net barrels of oil equivalent per day, about 92% of which is oil. The newly acquired field areas are in the vicinity of EPL's existing South Timbalier and East Bay operations and are shallow water fields.

Energy Partners said it would issue senior notes to fund the acquisition.

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