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M&A activity in the deep freeze

CHINA'S CNOOC said recently that it was not planning any more foreign take-over attempts and would prefer joint-venture agreements abroad. Following through on its promise, last month it announced a venture with Kazakhstan's KazMunaiGaz.

If state-owned CNOOC's intent is true, it underscores a wider slow-down in deal-making activity. A report from accountants PriceWaterhouseCoopers (PWC) says mergers and acquisitions (M&A) activity, which it measured over 2008, has followed the oil price into a slump. "Deal value reduced progressively throughout 2008, before following the oil price over a cliff in the final quarter as the financial crisis intensified and economic conditions deteriorated," the report says.

Of the deals made in 2008, says PWC, only two topped $5bn. The number of deals remained high – but their total value was well beneath the $31.4bn seen in 2007. "Companies slammed on the brakes in the final quarter [of 2008] with a total oil and gas value down by 59% on 2007 levels and by 72% compared with the final quarter of 2006."

Natural gas assets were the target of the deal making that went on last year, with six of the top 10 acquisitions in that sector; five of those six were for unconventional plays, all in North America and Australia, which was particularly active (see p16).

The last time the oil price was low, in the late 1990s, the era was characterised by a series of mega-mergers that yielded oversized majors such as BP, ExxonMobil, ChevronTexaco and ConocoPhillips. But PWC says the outlook for more deal-making in 2009 is "bleak". Nonetheless, it expects Chinese firms and sovereign wealth funds will be "watching the sector closely". And signs of an acceleration in corporate activity are starting to emerge among small, cash-strapped firms on London's Alternative Investment Market.

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