January 22, 2012 [OPIS] - The merger and acquisition activity in the downstream oil and gas segment declined modestly during 2011 even though overall values were comparable to 2010 levels, according to a report issued by Ernst & Young on Friday. Ownership change in refining and retail in mature markets continued stemming from ongoing portfolio rebalance and capital allocation reviews amongst the majors, it said.
“Downstream activity will continue but may be more concentrated in storage and midstream rather than refining,” according to Ernst & Young. “Downstream, the components of the sector most heavily exposed to the global economy’s problem areas, will find transactions harder to finance and therefore to close. Winners will need to manage risk, volatility and capital across a global political landscape,” it added. Transaction activity will continue into 2012, but will be affected by wider economic volatility. As ever, high quality upstream assets will attract buyers and good midstream assets will too, Ernst & Young said. Ernst and Young is involved in, assurance, tax, transaction and advisory services.
A total of 1322 oil and gas transactions were announced in 2011, an increase of more than 5% when compared to 2010. This proves that this remains one of the most resilient global sectors for mergers and acquisitions. The aggregate value of oil and gas transactions in the year totaled $317 billion. The 2011 deal value was about 7% below last year’s $341 billion, largely as a result of a lack of mega deals. In 2010, there were 76 oil and gas transactions valued in excess of $1 billion, and in 2011, this figure had declined to 71. “The oil and gas market has proved that it can adapt to higher levels of uncertainty and keep transacting. The key questions now are how it will cope with the combination of commodity price volatility and structural contraction in global debt capacity,” Ernst & Young said.
The upstream segment remained the most active, representing 72% of total deal volumes. North America, accounting for 562 deals or 43%, remained the most active market, although the strongest growing regions were Europe and the CIS, reflecting resurging interest in these regions. With $66 billion targeted on shale related transactions, unconventional is rapidly emerging as the new conventional.
Although most of the deal activity has been in North America, China is the largest shale gas resource holder in the world, with 19% of global resources. If the potential in this asset base can be unlocked, this could transform the oil and gas landscape in years to come.
