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North American unconventionals dominate upstream M&A

GLOBAL upstream mergers and acquisitions (M&A) activity in second-quarter (Q2) was up by 21% compared with Q1, and 13% higher than in Q2 2009, lead by North American deals

 The quarter saw 69 deals completed, with a total value of $33bn, compared with 61 with a total value of $29bn for Q2 last year, reports IHS Herold, a research firm.

Of the 69 deals in Q2, 57 (or 83%) were in the US and Canada, compared with Q2 2009, when 35 of a global total of 61 deals were struck in the two countries – reflecting significant growth in interest in regional assets. The highlights of the North American deals involved unconventional oil and gas resources, reserves and acreage, driven by Asian national oil companies and large international firms.

Tom Biracree, senior financial editor at IHS Herold, says that as well as buyers flocking to North American unconventional assets simply because of their reserves potential, "a secondary focus is a realignment of political risk. Although there is some danger surrounding [uncertain] environmental regulations in the US and Canada, the countries are politically, and fiscally, fairly stable."

Although both oil and gas prices dropped slightly compared with Q1, the value of North American asset deals is continuing to rise, marking a recovery in buyer confidence and an improvement in credit-market liquidity. The Canadian deal count is at its highest point in almost three years, with more than $10bn of asset deals and a lot of corporate consolidation involving sub-$1bn market-capitalised companies.

In the US, Apache made two large Gulf of Mexico acquisitions before the Deepwater Horizon spill – Mariner Energy for $4.5bn in cash and stock and Devon Energy's shelf assets for $1.05bn in cash.

Chinese state-owned companies are continuing to pursue global expansion through M&A. Q2 activity included Sinopec's $4.65bn acquisition of ConocoPhillips' 9% interest in Syncrude (the Canadian oil sands' biggest producer); Sinochem's $3.07bn purchase of Statoil's stake in the undeveloped Peregrino field offshore Brazil; and China Investment Corporation's more than $2bn of spending on oil-sands' producer Penn West and US shale-gas specialist Chesapeake Energy.

And the third and fourth quarters are set to be even busier for upstream M&A, with ConocoPhillips, BP and Shell all running big divestiture programmes, totalling an estimated $57bn. In Q3, ConocoPhillips is expected to close a $3.44bn deal to sell its entire stake in Lukoil back to the privately owned Russian major.

BP, meanwhile, which has already taken $7bn from Apache for North American and Egyptian assets and a potential $1.8bn for Vietnamese and Pakistani assets, will raise another $21bn over the next 18 months. These could include its Prudhoe Bay assets in Alaska, valued at around $12bn, and its 60% stake in Pan-American Energy in Argentina, which is valued at around $9bn.

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