Overall, 2011 has seen more cautious transactions with much fewer large deals.
Activity levels declined throughout the year
The year 2011 began with transaction activity continuing the encouraging pace seen at the end of 2010. This momentum did not continue and total transaction activity was comparable to 2010.
There were a total of 957 transactions announced versus 947 in 2010. The 36% decline in reported total transaction value was far more substantial, driven by the absence of a megadeal.
Overall, 2011 has seen more cautious transactions with much fewer large deals. There were 38 upstream deals greater than US$1b in value compared to 55 in 2010.
Deal values and volumes
An unconventional era
The booming unconventional sector has drawn headlines around the world. Shale gas now accounts for about 30% of US gas production.
Environmental and political turbulence surrounds this North American game changer. On the other side of the Atlantic, the potential of European shale remains to be proven, but environmental concerns exist. France announced a ban on hydraulic fracturing of shale gas and oil projects.
Oil and gas transaction activity by NOCs: deal volume
Oil and gas transaction activity by NOCs: deal value
IOCs continue to fuel transaction activity as the buying population for over 90% of announced upstream transactions. The super majors alone involved in almost US$20b of disclosed transaction spend.
Conversely, NOCs were buyers for only 6% of transactions, with 43 announced upstream transactions in 2011.
Partnering up in the downturn
In an era of constrained access to capital, resources and expertise, partnering is a logical conclusion. In particular, the success in North American unconventional plays has driven the formation of a number of NOC/IOC partnerships aimed at exporting expertise to other areas of the globe.
Uncertain 2012 likely to exceed admittedly low expectations
Today's uncertain economic climate looks unlikely to be resolved soon, and a winter of austerity is likely to carry challenges well into 2012.
From an M&A perspective, corporate transactions remain attractive given depressed market pricing, although volatility remains a challenge for valuations.
Unconventional reserves will continue to generate interest, and the rising development costs should sustain the level of investment opportunities coming to market.
On the conventional side, frontier exploration in the Arctic and East Africa has started in earnest and will be closely monitored, with transaction activity set to follow exploration successes.
