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Rising oil and gas M&A activity set to continue in 2010

GLOBAL upstream merger and acquisition (M&A) transaction value increased by 40% in 2009 to just under $150bn, reversing two consecutive years of decline, according to IHS Herold, a research firm. The two largest corporate take-overs since 2006 – ExxonMobil's $41bn acquisition of XTO Energy and Suncor Energy's $21bn merger with Petro-Canada – made a big contribution and mean that North American deals accounted for a record two-thirds of the $150bn (see Table 1).

IHS Herold expects M&A activity to continue in 2010, with more than $20bn of assets on the market and a pool of well-capitalised international buyers seeking to secure supply and increase their reserves, and credit becoming more freely available. North America's unconventional-gas sector could see a substantial amount of activity, despite natural gas prices remaining low, says IHS Herold (see Figure 5, p38).

"The massive volumes of long-lived North American unconventional-gas resources with minimal exploratory risk are extremely enticing for international oil companies (IOCs) that seek to replace declining production from mature, conventional basins," said Chris Sheehan, director of M&A research at IHS Herold. "Internationally, we believe strategically driven Asian NOCs will continue their quest to secure global energy supply through the M&A market, with IOCs and independents battling for the same world-class assets." 

North American transactions represented 65% of the global total in 2009, up from 50% in 2008, IHS Herold said in its annual Global Upstream M&A Review. Six of the 10 largest deals in 2009 were North American reserves acquisitions, as buyers sought access to large unconventional-gas and oil-sands resources – which offer the twin attractions of political stability and low exploration risk. Unconventional resources, including shale gas and oil sands, were the focus of the two largest deals and four of the top 10 in North America.

The number of deals outside North America increased for the third consecutive year to an all-time high, as companies sought to build oil reserves by accessing world-class discoveries and acquiring small companies exploring in frontier regions. Competition between national oil companies (NOCs) and IOCs for control over African energy resources also helped the increase, IHS Herold said.

NOCs were buyers in four of the 10 largest deals, led by Asian NOCs expanding their upstream holdings in Africa, Canada and the former Soviet Union. 

In 2009, acquired proved reserves were around 60% oil (nearly 80% oil excluding the ExxonMobil/XTO transaction); proved plus probable reserves transacted volumes were more than 50% oil. Outside North America, acquired proved reserves were more than 95% oil, significantly higher than the historical norm of around 70%. Natural gas accounted for 65% of acquired North American proved reserves, in line with the five-year average.

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