2012: Record Year for Upstream M&A Activity, Wood Mackenzie Says

2012 was another record year for upstream M&A activity totalling $232 billion of spend according to Wood Mackenzie’s annual M&A review.

The year was dominated by three major transactions in the second half of the year: Rosneft/TNK-BP; CNOOC/Nexen; and Freeport/Plains. Excluding these deals, while it wasn’t a record high, deal spend was very strong at $138 billion. The four key themes Wood Mackenzie identifies are: Asian National Oil Companies (NOCs) significant buyers with $7 billion of spend; the Major oil companies’ $60 billion swing from net buyers in 2011 to net sellers in 2012, dispensing with $56 billion of assets; continued high spend on unconventional oil and gas assets in North America; and a boom in LNG focused acquisition activity.

According to Wood Mackenzie’s analysis, disclosed upstream spend for 2012 totalled $232 billion, the highest annual deal spend on record, but it was heavily skewed by three large transactions. Rosneft’s $58 billion purchase of TNK-BP saw it become the world’s largest publicly traded oil company by liquids production; CNOOC/Nexen is the largest ever acquisition by a Chinese NOC; and lastly copper miner Freeport made a surprise return to oil & gas by acquiring US-focused independent Plains E&P for $17.2 billion.

Luke Parker, Manager of Wood Mackenzie’s M&A Service says: “If we exclude deals of over $10 billion, deal spend was very strong at $138 billion but substantially lower than the record year we saw in 2010 of £178 billion. The number of M&A deals was also up year-on-year at 456, but fell slightly short of 2010’s watermark of 466.”

Looking to 2013, Wood Mackenzie says the industry is primed for M&A activity. Parker elaborates: “The Majors have very strong balance sheets and cash flow so we can expect an uptick in activity. The Asian NOCs will continue to play their part, with a second wave of players looking to make up ground on their Chinese counterparts. For both groups, small to mid-size asset acquisitions focused on long life resource themes will remain the focus.”

The report says key areas to watch for are US tight oil, Canada unconventional gas, exploration focused corporate M&A and big LNG – East Africa in particular. Wood Mackenzie forecasts deal valuations to continue a steady upward trend, with growing industry confidence in the long-term sustainability of high oil prices.

Delving into the four key themes outlined in the review, Wood Mackenzie remarks that for the first time the NOCs were the biggest spenders by peer group. Significantly, $46.9 billion was spent by Asian NOCs, with Chinese NOCs the largest spenders. Parker adds; “CNOOC’s $18.5 billion acquisition of Nexen was the headline deal, but in total, CNOOC, Sinopec and PetroChina spent over $31 billion in 2012.” It’s a trend Parker says will continue: “Compatriot CNPC/PetroChina has yet to truly flex its muscles on the international stage: with enormous financial fire-power, 2013 might be the year in which it steps up activity. We expect NOCs to be M&A leaders again in 2013.”

In contrast, the Majors have never sold as much, and have not spent so little since 2004. As a group, they sold $56 billion of assets in 2012, and made acquisitions totalling US$13 billion. Having been net buyers in 2011, 2012 represented a negative $60 billion swing in net Acquisitions and &Divestments. “BP led the selling pack, with its exit from TNK-BP the year’s headline deal, whereas ExxonMobil and Shell are the only Majors that could be considered active acquirers in 2012.”

Despite unconventional M&A spend dropping 28% year-on-year, it remains a key theme totalling $45 billion in 2012. For the first time, oil deals overtook unconventional gas deals, largely due to interest in US tight oil plays, while the US shale gas M&A market collapsed. Parker adds: “The trends we noted in 2012 will persist: Tight oil focused spend will continue its steep upward trajectory as the scale of the resource ensures strong interest from a wide range of potential buyers, and a fragmented corporate landscape provides ample scope for consolidation. The US will see the vast majority of investment, but Canadian tight oil M&A could grow as embryonic plays are proved up. We also believe Canadian shale gas will continue to attract interest as a feedstock for future LNG developments whereas US shale gas M&A is likely to remain relatively subdued.”

Wood Mackenzie says there has been over US$60 billion worth of LNG focused acquisitions in the past five years. Parker explains: “LNG focused M&A has boomed. New sources of supply – unconventional gas in Australia and North America, and deepwater volumes in East Africa and Israel – have seen the biggest spend, meanwhile longer established LNG plays – north west Australia in particular – have also seen significant deal flow. We fully expect the market for LNG assets will remain buoyant, with activity again concentrated on pre-development projects during 2013.”

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Press Release, January 17, 2013