Strong revival in upstream M&A activity
The upstream mergers and acquisitions sector recovered strongly during the course of 2009, according to a new review by analysts Wood Mackenzie.
EDINBURGH -- The upstream mergers and acquisitions sector recovered strongly during the course of 2009, according to a new review by analysts Wood Mackenzie.
“Global Upstream M&A – 2009 in review and the outlook for 2010” reveals that monthly deal activity surged from record lows during the first part of last year to near-record highs by year-end. As a result, the global M&A spend for 2009 exceeded $150 billion, up 35% on the figure for 2008 and only 15% below the record investment levels of 2006.
Wood Mackenzie’s M&A Service Manager Luke Parker says: “The rebound in deal activity gained strong momentum through the second quarter. Once the wider economy began to show signs of stabilizing, the key to the recovery in Upstream M&A was a re-alignment in the price expectations of buyers and sellers.”
The implied long-term oil price – Wood Mackenzie’s estimate of the long-term Brent crude figure needed for a buyer to generate a 10% return on an investment – averaged $66/bbl for the year, in line with the level for 2008.
“Once the oil price hit the $70/bbl mark,” Parker says, “it was back in alignment with market valuations and industry consensus planning assumptions for the first time since late 2007. It was this convergence that served to ease the disconnect between the price expectations of buyers and sellers, and to facilitate the rebound in deal activity witnessed during the second half of the year.
“The ramp-up in the level and intensity of M&A activity witnessed during the second half of 2009 was a return to mean. Provided that tentative global economic recovery remains on track and commodity prices are relatively stable, the market is likely to hold at its current level through 2010.”
Parker continues, “We maintain the view that large-scale corporate consolidation is unlikely. For the Majors at least, the drivers for such moves are not nearly as strong as they were in the late 1990s. We would, however, expect to see a pick-up in the level of smaller scale, strategic acquisition and divestment activity amongst this peer group over the next few years. We also maintain the view that the expansive National Oil Companies (NOCs) have the financial muscle and strategic imperative to significantly increase the scope and intensity of their M&A activity.”
Other trends identified in the report in 2009 include doubled overseas investment by the NOCs, to a total of over $26 billion, equivalent to a record 17% of global M&A spend and 44% of the total M&A spend outside North America. Asian NOCs were particularly active, abandoning their caution of the previous two years. Also, unconventional resources remained an important driver for M&A activity. The largest of these deals was ExxonMobil’s $41 billion acquisition of XTO.
The report adds that the total resource traded during 2009 was over 77 Bboe (49% liquids and 51% gas). This compares with annual global oil and gas production of around 48 Bboe (64% liquids and 36% gas).