www.pwc.co.uk/oilandgas

Oil and Gas global deals A strong close to the year for global activity

April 2013

Global oil and gas deals H2 2012

The second half of 2012 has seen the the acquisition of Plains Exploration and highest number of global oil and gas Production Company, whose asset base deals since 2008, and the highest in is spread across California, Texas, value terms since 2010. There were 524 Louisiana and the Gulf of Mexico. global oil and gas deals in H2 2012, The oilfield services sector showed a totalling $240.3bn, bringing the 2012 strong upturn in deal flow with 62 deals full year figures up to 915 deals totalling totaling $14.7bn compared to H1 2012’s $352.2bn. Deal volumes were up 23% 42 transactions at $7.3bn. The standout on the prior year, but remain 21% off deal in the sector was SapuraKencana’s peak levels. $2.9bn acquisition of Seadrill’s tender This activity was driven by a significant rig operations. The acquisition will rise in top tier deals, with 44 deals increase the size of SapuraKencana’s valued at over $1bn compared to 31 in fleet by 16 (with a further five under H1 2012. The majority of these were construction) and allow Seadrill to upstream related with Rosneft’s reinvest the net proceeds into expansion acquisition of TNK-BP (separately of its deepwater and jack-up fleets. acquiring 50% stakes from BP and an Activity in the drilling sector has been Access Industries consortium) the buoyant over the last few years with largest. The deal means Rosneft will mega deals allowing companies to now control 40% of Russia’s oil output. quickly increase fleet sizes as order In addition to the two Rosneft deals, the books in the main ship yards remain upstream sector continued to perform full in the medium term. Transocean’s strongly. CNOOC announced its $1.4bn acquisition of Aker Drilling and acquisition of Canadian based Nexen for Ensco’s $8.7bn acquisition of Pride $20.7bn, completing the transaction in International are recent examples (both February 2013 after a lengthy regulatory 2011 transactions). Transocean has also approval process. The acquisition is the been a seller in recent times; it offloaded largest ever takeover by a Chinese 38 shallow water rigs to Shelf Drilling in company. Importantly, from a UK a $1bn deal. Shelf is private equity perspective, it provides CNOOC with backed by Castle Harlan, CHAMP and operating control of the UK’s largest Limerock. oilfield discovery of the last 25 years The oilfield services sector continues (Buzzard) and demonstrates the to attract a high level of interest from attractiveness of the UKCS to the the major PE Houses, with KKR National Oil Companies. The second acquiring Acteon Group in December half of 2012 also included significant 2012, and First Reserve acquiring deals on the UKCS for Sinopec Ameriforge in North America, both for (Talisman UK) and TAQA (various BP undisclosed sums. assets). In the US, Freeport-McMoRan Copper & Gold Inc’s $17.4bn announced

PwC | Oil and Gas global deals | 1 The midstream sector performed Downstream deal volume rose in the period in the late 1990’s which saw slightly better in the second half of 2012 mid market, with total deal value mergers between the likes of BP/Amoco, with 35 deals totalling $18.2bn dropping from $22.1bn in H1 2012 to Exxon/Mobil and Chevron/Texaco. compared to 20 for $12.7bn in H1 2012. $11.5bn in H2 2012. Notable With oil prices stable for the last few Total deal value for the full year was transactions in the period were BP’s years, and ever increasing energy some distance from the highs of 2011, divesture of the Carson oil refinery to demand, the market conditions look principally due to the effect of several Tesoro Corporation for $1.2bn and Gulf highly positive in the medium term exceptional deals in the sector during Oil Corp’s $1bn acquisition of specialty which should lead to further M&A the prior year. Top billing in H2 2012 chemicals maker Houghton activity across all sectors of the industry. went to Tallgrass Energy Partners’ International from AEA Investors. The shale revolution has had an impact $3.3bn acquisition of various assets from Looking forward into 2013 we anticipate on global deal volumes in recent years; Kinder Morgan Energy Partners the recent trend of top tier upstream however the underlying impact on oil including Kinder Morgan Interstate Gas deals to continue, with some industry prices has yet to be fully understood. Transmission, Trailblazer Pipeline commentary signalling conditions are Recent reports suggest that the price Company, gas processing facilities in ripe for a further round of tie ups impact could vary by region and may Wyoming and the company’s 50% between the oil majors. Whilst the even lead to price decreases (see our interest in the Rockies Express Pipeline. economic conditions are very different, report Shale Oil: the next energy comparisons have been made to the revolution). Even in this scenario, the rationalisation of portfolios will support deal activity.

Number of global deals Period Number Value Average value Q1 2008 346 55.1 0.16 2008 total = 2008 total = Q2 2008 328 1,161 86.1 302.8 0.26 Q3 2008 295 89.7 0.30 Q4 2008 192 71.9 0.37 Q1 2009 144 62.3 0.43 2009 total = 2009 total = Q2 2009 208 847 55.6 248.5 0.27 Q3 2009 244 42.2 0.17 Q4 2009 251 88.4 0.35 Q1 2010 213 88.1 0.41 2010 total = 2010 total = Q2 2010 228 816 68.3 384.2 0.30 Q3 2010 180 121.2 0.67 Q4 2010 195 106.6 0.55 Q1 2011 161 73.5 0.46 2011 total = 2011 total = Q2 2011 200 743 47.3 299.5 0.24 Q3 2011 169 74.1 0.44 Q4 2011 213 104.6 0.49 Q1 2012 193 63.7 0.33 2012 total = 2012 total = Q2 2012 198 915 48.2 352.2 0.24 Q3 2012 241 85.7 0.36 Q4 2012 283 154.6 0.55

2 | Oil and Gas global deals | PwC Last twelve months deal volumes and values

1,200 450

400 1,000 350 800 250

600 200

No of deals 150 400 Deal value $bn 100 200 50

Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

< $250m $250 — $1bn > $1bn Deal value

H2’12 – Deal size H2’12 – Total number of deals

4% 10% 5% 5%

7% 21% 6% 53%

69% 5%

5%

10%

< $250m $250 - $1bn > $1bn North America International Asia-Pacific

Europe South and Australia Central America

Former Soviet Africa Middle East Union

PwC | Oil and Gas global deals | 3 H2’12 – Deal value by sector 8% 6%

10%

76%

Upstream Downstream Midstream Services

Global M&A volume

400 160

350 140

300 120

250 100

200 80

150 60 $ boe

Deal volume 100 40

50 20

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2006 2007 2008 2009 2010 2011 2012

Upstream Midstream Downstream Services Brent crude price Henry hub gas price

Global M&A activity

141.2 161.6 117.9 130.6 156.5 227.8 120.8 178.7 111.9 240.3 180

160

140

120

100

80

Deal volume ($bn) 60 40

20

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2008 2009 2010 2011 2012

Upstream Midstream Downstream Servcies

4 | Oil and Gas global deals | PwC Rank Buyer Target Seller(s) Territory Value Sector $bn 1 Rosneft 50% of TNK-BP Access Industries; Former 30.7 Upstream Alfa Group Soviet Union Consortium; Renova Group; TNK-BP Ltd.

2 Rosneft 50% of TNK-BP BP plc; TNK-BP Ltd. Former 29.3 Upstream Soviet Union 3 CNOOC Limited Nexen Inc. Nexen Inc. Canada 20.7 Upstream 4 Freeport-McMoRan Plains Exploration Plains Exploration & United States 17.4 Upstream Copper & Gold Inc. & Production Co. Production Co. – Diversified 5 Petroliam Nasional Progress Energy Progress Energy Canada 5.9 Upstream Berhad Resources Corp. Resources Corp. 6 Plains Exploration Interests in Gulf of BP plc United States 5.6 Upstream & Production Co. Mexico – Gulf of Mexico 7 ONGC Videsh Ltd.; Interests in ConocoPhillips Former 5.0 Upstream Oil & Natural Gas Kazakhstan Soviet Union Corp Ltd 8 Nucor Corporation; Interests in onshore Encana Corporation United States 3.6 Upstream Nucor Energy natural gas wells – Rocky Holdings, Inc. Mountains 9 Tallgrass Energy Various midstream Kinder Morgan United States 3.3 Upstream Partners, LP assets – USA Energy Partners LP – Rocky Mountains 10 Exxon Mobil Celtic Exploration Celtic Exploration Canada 3.3 Upstream Corporation Ltd. Ltd.

PwC | Oil and Gas global deals | 5 Spotlight on UK North Sea

Top 10 UK North Sea Deals 2008–2012

Buyer Seller Deal value Year ($bn) KNOC Dana Petroleum 3,740 2010 Apache Exxon Mobil 1,750 2011 Centrica Venture Production 1,747 2009 Sinopec Talisman Energy 1,500 2012 EnQuest Lundin Petroleum AB; Petrofac 1,274 2010 TAQA BP 1,058 2012 Dyas UK Oranje-Nassau Groep 840 2009 Total GDF Suez 802 2011 Eni SpA GDF Suez 802 2011 TAQA ExxonMobil; Shell 631 2008

UK North Sea Upstream deal activity

35 7

30 6

25 5

20 4

15 3 No of deals Deal value $bn 10 2

5 1

2008 2009 2010 2011 2012

Deal volume Deal value

6 | Oil and Gas global deals | PwC While North Sea deal volume over the Aside from the NOCs, deal activity has last five years has remained fairly been driven by the rebalancing of asset consistent (with the exception of 2010, portfolios by the majors, as some look to when the industry felt the effects of the free up cash to focus investment on new global downturn) we have seen a rise in territories. Encouragingly there has deal value with a steady increase in been a high level of interest, not only ‘mega deals’. from the NOCs but also other major oil companies. The increase in deal value can be attributed to a combination of strong Tax incentives, clarity over the extent of independents with attractive assets, tax relief for decommissioning costs, and divestment of the super majors and portfolio rationalisation all have a allowing some of the world’s National big part to play. These, coupled with an Oil Companies (NOCs) to enter the ever increasing worldwide energy North Sea. demand, mean that we expect this level of interest to continue for some time to The trend began in 2008 when TAQA come. With an estimated 15–24 bn boe (the Abu Dhabi National Oil Company) of recoverable oil remaining in the acquired assets from Shell and Exxon North Sea, and recent press suggesting Mobil for a reported $631m. This was a period of increased production to followed by several smaller acquisitions 2017 on the back of West of Shetland from Premier Oil and Sterling Resources assets, the continued interest in the UK and the $1.1bn acquisition of a number is justified. of BP’s North Sea assets including interests in the Harding, Maclure and Deal activity in the upstream service Devenick fields. The BP deal, which sector, although smaller in value terms completed in December 2012 added a than exploration and production, feels further 21,000 boe p/d of production to healthy, although it was noticeable in TAQA’s already extensive portfolio. 2012 that not all deal discussions reached a successful conclusion. Partly The largest and most publicised deal of this was down to differences of opinion the last five years was 2010’s hostile relating to value, with the views from takeover of Dana Petroleum by the funders being supportive but below peak Korean National Oil Company (KNOC) levels. Many private equity funds for $3.7bn. Since the deal, KNOC has continue to monitor the sector hoping to made further acquisitions under the follow recent deal completions from Dana brand, including the Guillemot funds such as AEA, Investcorp and LDC. and Scott fields from Petro-Canada, and Triton area from Hess in 2011 and Source: John S.Herold, Inc. ‘M&A 2012 respectively. database’, PwC analysis, EIA website More recently, the North Sea has attracted interest from the Chinese NOCs with Sinopec acquiring a 49% stake in Talisman Energy’s North Sea business (which has since been rebranded Talisman Sinopec Energy UK) and CNOOC acquiring Canadian based Nexen, both in December 2012.

PwC | Oil and Gas global deals | 7 Contacts

Drew Stevenson Alan Barr Tel: +44 0141 355 4110 Tel: +44 01224 253 181 Email: [email protected] Email: [email protected]

Richard Spilsbury Neil Leppard Tel: +44 01224 253 214 Tel: +44 020 7804 3168 Email: [email protected] Email: [email protected]

Tony Skrzypecki Jon Shelley Tel: +44 020 7804 5500 Tel: +44 01224 253 194 Email: [email protected] Email: [email protected]

Alan McCrae Robert Aitken Tel: +44 020 7213 4004 Tel: +44 01224 253 129 Email: [email protected] Email: [email protected]

8 | Oil and Gas global deals | PwC

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

130410-105606-LG-OS