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Canada leads way on oil M&A

GLOBAL mergers and acquisitions (M&A) activity remained buoyant in the third quarter, with Canada leading the way. According to John S Herold, a consultancy, total deal value in the third quarter of 2007 reached $34.25bn, down on the second-quarter figure of $52bn, driven by M&A activity in Russia, but substantially higher than the first-quarter figure of $23bn. There were 79 separate transactions – $15.98bn worth in Canada and $10.65bn worth in the US. In Europe, however, just $1.47bn-worth of deals were conducted (see Table 1).

The UAE's state-owned Taqa has been particularly active in the asset market, spending $8bn on acquisitions in the second and third quarters on mature cash-generating properties in Canada. Taqa is preparing to make further acquisitions and launched a $5.12bn take-over of Canada's PrimeWest Energy Trust in late September.

Ultimately, the company plans to build a $20bn asset base in Canada. In August, Taqa began talks to buy Pioneer Natural Resources Canada for $0.54bn and completed the $2bn acquisition of Northrock Resources, which has been renamed Taqa North.

Meanwhile, the US' Marathon Oil, completed the $6.3bn acquisition of Western Oil Sands last month – a deal launched in the third quarter – excluding assumed debt. This deal will give it a 20% stake in the 155,000 barrels a day (b/d) Athabasca Oil Sands Project, one of the world's largest untapped reservoirs of unconventional crude.

Across Canada, 26 upstream transactions took place in the third quarter. Such is the hunger for Canadian assets that Ottowa plans to screen foreign take-overs of Canadian companies, introducing a national security test next year (see right). The government is preparing legislation that would allow it to block investments by state-owned or state-controlled firms on national security grounds. However, this would not apply to deals already under way, such as Taqa's PrimeWest bid.

North American corporate transactions accounted for nearly half of worldwide deal value, says John S Herold. The largest deals include US independent Plains Exploration's $3.6bn bid for Pogo Producing. Plains Exploration intends to add the Pogo assets with other onshore properties into a newly formed master limited partnership (MLP). US MLPs targeting onshore assets dominated the domestic market during the third quarter, representing more than 40% of US transaction value, says John S Herold. Additionally, most US deals were concentrated on the Mid-continent and Gulf coast areas, in contrast to preceding quarters when the Rockies and Gulf of Mexico dominated transactions.

National oil companies continue to focus their attention on acquiring reserves in Africa and Asia. Malaysian national oil company Petronas spent $418m on Woodside Petroleum's upstream assets in Mauritania in September, where it previously had an equity position in just one block. The sale includes all Woodside's onshore and offshore producing, development and exploration interests in the west African country.

In Asia, state-owned Kuwait Foreign Petroleum Exploration (Kufpec) bought an Indonesian unit of ConocoPhillips for $330m. Kufpec secured ConocoPhillips's 25% stake in the Pangkah block – the Ujung Pangkah field produces 60m cubic feet a day of gas and oil production of 25,000 b/d is due to start up in 2009.

In Europe, consolidation on London's Alternative Investment Market sector failed to meet expected levels. For example, Rak Petroleum failed in its bid to buy Gulf Keystone, which has acreage positions in Algeria. However, Europe may be set for an M&A revival, with Italy's Eni launching a hostile bid in the third quarter for the UK's Burren Energy, valuing the oil company at £1.5bn ($3bn). The deal could help Eni to improve on its unimpressive 64% organic reserves-replacement ratio. Indeed, the appeal of inorganic growth to the majors is likely to remain a significant influence on the asset market in 2008.

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