Global oil and gas transactions review 2011 2011 Europe, Middle East, India and Africa 1 tax policy outlook Introduction The upstream segment remained the most active, representing 72% of total deal volumes. North America, accounting for Welcome to Ernst & Young’s 562 upstream deals, or 59%, remained the most active market, annual review of global oil and gas although the strongest growing regions were Europe and the CIS. With US$66b targeted on shale–related transactions, transaction activity. In this report, unconventional is rapidly emerging as the new conventional. China is the largest shale gas resource holder in the world, with 19% of we look back at some of the main global resources. If the potential in this asset base can be unlocked, trends in oil and gas merger and this could transform the oil and gas landscape for years to come. acquisition activity over 2011 Transactions activity in the downstream segment declined modestly during 2011, although overall values were comparable to 2010 and consider the outlook for levels. Ownership change in refining and retail in mature markets continued, stemming from ongoing portfolio rebalance and capital transactions in the sector in 2012. allocation review. With refined product demand declining in Europe We analyze the diverse dynamics and North America, rationalization is expected to remain on the agenda in 2012. Storage facilities, offering global connectivity and in the upstream, downstream and trading potential, have seen the greatest level of demand from oilfield services sectors, as well as would–be acquirors. These trends are likely to continue in 2012. Oilfield services companies, like their customer base, are globalizing the regional trends that underlie and consolidating. Many of the larger players are well–capitalized this macro picture. and opportunistic, and financial players also remain active. As a result, the segment saw an increase in deal activity in 2011 and there is a positive outlook for 2012, underpinned by those seeking In 2011, more than 1,322 oil and gas transactions were new geographies, new customers or new technologies. announced, an increase of more than 5% on the 1,258 deals The oil and gas sector is critical to the global economy. By the same reported last year. With an average of more than three transactions token, the oil and gas sector cannot exist perpetually insulated from every day, oil and gas has continued to be one of the most active wider political and economic turmoil. These dynamics are driving global sectors for M&A. Only the downstream segment of the considerable volatility in the capital markets, and this is likely to industry saw a decline in transaction volumes in 2011, with the have a significant impact on capital intensive sectors such as oilfield services segment turning in a very healthy 64% increase. oil and gas. We anticipate that capital constraints among the The aggregate value of oil and gas transactions totalled US$317b. independent sector, combined with well–capitalized large–caps and The 2011 deal value was about 7% below last year’s US$341b, sovereign–sponsored organizations, will underpin a robust level of largely as a result of fewer megadeals. In 2010, there were transaction activity in 2012. 76 oil and gas transactions valued in excess of US$1b; in 2011, The year 2011 promised more than it delivered. Against an this population had declined to 71. The largest oil and gas uncertain economic and capital markets background, 2012 transaction of 2011, Kinder Morgan’s US$38b acquisition of promises less but could likely deliver more. El Paso, was broadly comparable to last year’s largest deal, Petrobras’s US$42.5b equity transaction. Source: IHS Herold Inc (unless otherwise stated). 1 Global oil and gas transactions review 2011 Contents 1. Upstream 03 2. Downstream/midstream 09 3. Oilfield services 13 4. Regional roundup 17 • Africa 19 • Australia 20 • Canada 21 • CIS 22 • Europe 23 • Far East 24 • India 25 • United States 26 Global oil and gas transactions review 2011 2 >> Upstream Last year was marked by global turbulence, A more worrying trend, however, can with political change, economic upheaval be seen on a quarterly basis, where deal and natural disaster all playing a major part. volumes declined in the second half of Clarity has been hard to come by, yet it is 2011. This reflects growing economic clear that security of energy supply and uncertainty during the year, combined with reliance on the oil and gas sector are tightening capital markets. Access to debt undiminished. This is reflected in oil prices and equity funding, particularly for the that have remained robust despite an independent sector, is now extremely uncertain economic outlook and an challenging. Ironically, this situation is likely upstream M&A market that, although lower to result in an increase in transaction than in recent years, has averaged activity in 2012 as the largely well– approximately two to three transactions capitalized majors and national oil every day in 2011. companies (NOCs) exploit their balance sheet advantage. Figure 1. Upstream deal value and volumes 300 100 91.7 283 90 248 250 253 251 250 238 80 Announced value (US$billion) 222 222 220 200 203 70 200 67.1 63 60 50 150 138 45.6 42.2 43.7 39.4 43.9 39.4 40 Number of deals 32.3 100 30 29.5 24.9 20 50 10 0 0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Number of deals Total value Source: IHS Herold Inc 3 Global oil and gas transactions review 2011 Activity levels declined US$42.5b asset acquisition by Petrobras throughout the year and ExxonMobil’s US$40b acquisition of XTO in 2009. Overall, 2011 has seen more The year 2011 began with transaction cautious transactions with much fewer large activity continuing the encouraging pace deals. There were 38 upstream deals seen at the end of 2010. This momentum greater than US$1b in value compared to did not continue, however, and as a result, 55 in 2010. This is highlighted in the total transaction activity was comparable to following chart, which compares the value 2010, with a total of 957 transactions of the top 10 upstream transactions in each announced versus 947 in 2010. The 36% of the previous three years. decline in reported total transaction value was far more substantial, driven by the absence of a megadeal, such as last year’s Figure 2. 10 largest upstream deals in 2011 120,000 100,000 80,000 60,000 40,000 Deal value (US$million) 20,000 0 2009 2010 2011 Source: IHS Herold Inc Global oil and gas transactions review 2011 4 Asset deals continued to dominate the upstream transactions North America remains the most active market, landscape, accounting for 79% of deal volume. However, they but Europe and CIS exhibit strongest growth declined in absolute volume and announced values. The number of announced asset transactions slipped some 3%, to 758, while total On a regional basis, North America continued to lead transaction value dropped off 50%, to US$86b — though as noted previously, activity with almost 60% of announced transactions, comparable to the $42.5b Petrobras transaction weighs heavily in last year’s total. the prior year's 61%. The North American bias is echoed in Corporate deal activity increased by 18% over 2010 deal numbers. transaction values, with 58% of announced deal value being in the Reported corporate deal values were down slightly, $69b in 2011 US and Canada. Although remaining second to the US in versus $71b in 2010. transaction numbers, Canadian deal activity was down more than 30% on 2010, with 124 announced deals versus 186 for the prior year; and with fewer top–end deals, total value was down 65%. Figure 3. Number of upstream deals by type The decline in transaction activity was widespread, with only the 1,200 US, Europe, the CIS, Africa and India witnessing an increase in transaction volume on 2010 data. European transaction activity 1,000 was up 42%, with over half of the 108 transactions involving assets 168 199 in the North Sea — evidence of the resurging interest in the region. 800 214 600 Figure 5. Number of upstream deals by region 400 779 758 610 500 Number of transactions 200 450 432 390 0 400 2009 2010 2011 350 Assets Corporate 300 Source: IHS Herold Inc 250 200 186 150 124 108 Number of transactions 100 76 64 Figure 4. Total upstream deal value by type 52 61 58 47 55 58 50 36 38 41 27 14 17 20 300.0 0 Africa Asia Australia Canada Europe CIS United South Middle Other 250.0 States America East 2010 2011 200.0 71.5 Source: IHS Herold Inc 150.0 68.9 100.0 110.2 Figure 6. Total upstream deal value by region 170.1 Deal value (US$billion) 90.0 50.0 85.9 53.4 80.0 77.2 0.0 76.0 2009 2010 2011 70.0 66.4 Assets Corporate 60.0 Source: IHS Herold Inc 50.0 40.0 37.3 30.0 Deal value (US$billion) 20.0 17.616.9 12.7 12.2 10.0 9.310.8 9.7 10.3 6.8 6.4 6.17.4 4.5 3.0 4.9 0.0 0.9 Africa Asia Australia Canada Europe CIS United South Middle Other States America East 2010 2011 Source: IHS Herold Inc 5 Global oil and gas transactions review 2011 An unconventional era Canada’s tar sands activity has also intensified, as the strong oil price has facilitated an increase in the capital–intensive The booming unconventional sector has drawn headlines around development projects.