Most Asian Oil & Gas deals in 2011 are outbound investments to secure energy supplies
- A hotbed of activity, annual transaction survey shows
- Asia continues to see more outbound acquisitions
- Decline in renewable sector offset by rise in shale gas and oil sands productions
Hong Kong, 6 February 2012 — Globally, 1322 oil and gas transactions were announced in 2011, an increase of more than 5% compared to 1258 in 2010, proving that this remains one of the most resilient global sectors for mergers and acquisitions.
Yet the global aggregate value of these transactions in 2011 totalled US$317b, about 7% below 2010’s US$341b, largely as a result of a lack of mega deals. Globally, 71 oil and gas transactions were valued in excess of US$1bn, compared to 76 the year before.
Sanjeev Gupta, Asia-Pacific Oil & Gas Leader and a Transaction Advisory Services specialist Partner at Ernst & Young, comments: “The oil and gas market has proved that it can adapt to higher levels of uncertainty and keep transacting. The key questions now are how it will cope with the combination of commodity price volatility and structural contraction in global debt capacity.”
The upstream segment remained the most active, representing 75% of total Asian deal volumes and 72% globally. Amongst $66b globally targeted shale related transactions, unconventional is rapidly emerging as the new conventional. Although most of the deal activity has been in North America, China is the largest shale gas resource holder in the world, with 19% of global resources. If the potential in this asset base can be unlocked, this could transform the oil and gas landscape in years to come.
Activity in the downstream segment declined modestly during 2011, although overall values were comparable to 2010 levels. Ownership change in refining and retail in mature markets continued, stemming from ongoing portfolio rebalance and capital allocation reviews amongst the majors. “Downstream activity will continue but may be more concentrated in storage and midstream rather than refining.” comments Gupta.
Oilfield services companies, like their customer base, are globalising and consolidating. Many of the larger players are well-capitalised and opportunistic, and financial players also remain active. As a result, the segment saw an increase in deal activity in 2011 and a positive outlook for 2012 underpinned by those seeking new geographies, new customers or new technologies.
Outlook for Asia-Pacific Oil & Gas Transactions in 2012
Transaction activity will continue into 2012 but will be affected by wider economic volatility. As ever, high quality upstream assets will attract buyers and good midstream assets will too. Downstream, the components of the sector most heavily exposed to the global economy’s problem areas will find transactions harder to finance and therefore to close. “Winners will need to manage risk, volatility and capital across a global political landscape,” says Gupta.
“Despite substantial economic worries in the US and Europe, we expect to see more outbound acquisitions — especially for upstream assets — by the Asian players, notably Chinese and other broader Asian NOCs, and for unconventional gas assets. We also expect to see increasing supplies from Iraq and Libya in 2012 to meet the increasing energy demand from Asia–Pacific. We expect continuing portfolio rationalizing and optimization across subsectors, i.e., upstream, downstream and oilfield services and among a mixed set of players (NOCs, oil majors, independents, private equity and service companies). We also expect to see declining focus towards the renewable sector, as the industry will continue to see a rise in shale gas and oil sands production.” concludes Gupta.
Further information: Asia-Pacific Oil & Gas M&A in 2011
Australia’s deal–hungry junior oil and gas companies were starved of opportunity due to tough conditions in equity markets and as a result, the number of deals declined substantially from 73 to 58 or a 20.5% decrease compared to the year before. The value of Australian oil and gas transactions also declined over the period by 37% to US$7.2b. Consistent with 2010, 81% of transactions in Australia came from the upstream sector. The major transaction focus of 2011 was the de–risking of upcoming LNG developments. The largest deal announced in 2011 involved China Petroleum & Chemical Corporation (Sinopec) taking a 15% stake in the Conoco Phillips/Origin Energy LNG venture (APLNG) for US$1.8b. In addition to the 15% equity interest, Sinopec secured off–take rights for 4.3 mtpa of LNG from the proposed CSG–to–LNG project for 20 years.
The Fukushima nuclear disaster in March 2011 opened up higher gas demand, especially with respect to unconventional gas assets. The higher demand was evidenced in Japan, as well as in China and other Asian economies. 2011 major transactions in Asia were largely weighted toward outbound investments as a means to secure energy supplies. These transactions were mainly driven by the Chinese NOCs, with focus on upstream assets in the Americas, especially unconventional Canadian and United States shale gas plays, and South American conventional assets (such as in Brazil). A notable trend emerged in this group to balance and optimize portfolios based on resources, expected economic returns and associated risks.
Other Asian countries also showed momentum for outbound investments in their attempt to provide security of energy supplies in lieu of increasing domestic energy demand. Oilfield services sector transactions continued their momentum in this highly fragmented subsector, although the magnitude of deals was relatively smaller. Selective sovereign wealth funds and private equity remained focused on further building up their service portfolios.
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