HOUSTON, Jan. 29, 2013 /PRNewswire/ — Merger and acquisition (M&A) activity in the U.S. oil and gas industry hit a ten-year high during the fourth quarter of 2012 with 75 deals, according to PwC US. A number of factors drove this activity, including private equity (PE) interest, foreign buyers, shale plays, and companies looking to get deals done before the end of the year with the looming fiscal cliff and proposed tax changes. In fact, that flurry of fourth quarter activity pushed overall deal volume in 2012 to a ten-year high at 204 transactions (for deals valued at over $50 million), representing $146.2 billion – the second highest total deal value in ten years.

During the final three months of 2012, total deal value reached $56.2 billion, marking the second highest level seen in ten years (behind the $79.1 billion total deal value seen during the fourth quarter of 2011).

“M&A activity in the U.S. oil and gas sector was extremely robust in 2012, with the vast majority of that activity happening in the final three months of the year as many deals got pulled forward due to the uncertainty surrounding the fiscal cliff,” said Rick Roberge, principal in PwC’s energy M&A practice. “This past year was a watershed moment for the industry, with private equity involvement reaching an all-time high, shale deal volume at a two-year high during the fourth quarter, and a jump in asset transactions as companies have shifted their focus to adding more profitable liquid rich shale plays to their portfolios. We expect to see a slight pause in M&A during the first part of 2013 as companies focus on the recent wave of deals announced, but believe 2013 will be another banner year for deals as the U.S. oil and gas industry is ripe for continued consolidation. In fact, our recent PwC Global CEO Survey found that energy CEOs are among the most confident on growth prospects for this year than any other industry. ”

Private equity deal activity in the oil and gas industry marked an all-time high in 2012 with 34 transactions (which represented $28.4 billion). In the fourth quarter of 2012, there were 11 financial sponsor-backed deals worth $6.9 billion, a slight drop from the 13 PE deals in the fourth quarter of 2011 that totaled $13.6 billion. Additionally, there were 170 strategic deals in all of 2012 that contributed $117.8 billion, compared to 163 strategic deals in 2011 with a total deal value of $136.5 billion. During the fourth quarter of 2012, there were 64 strategic deals, a 64 percent increase from the 39 deals during the same time period last year. Total deal value for strategics was $49.2 billion during the last three months of 2012, a decline from the $65.5 billion in the fourth quarter of 2011.

PwC notes that during 2012, master limited partnerships (MLPs) were involved in 42 transactions, representing more than 20 percent of total 2012 deal activity, continuing the trend of increased MLP involvement over the past two years (MLPs represented 15.6 percent of total deal activity in 2010 and 18.4 percent in 2011).

For deals valued at over $50 million, upstream deals accounted for 53 percent of activity in the fourth quarter of 2012 with 40 transactions, representing $38.0 billion, or 68 percent of total fourth quarter deal value. The number of oil deals within the upstream sector totaled 22, a significant difference compared to five gas deals in the quarter. There were 21 midstream deals that contributed $10.9 billion. Nine downstream deals during the fourth quarter of 2012 added $5.9 billion, while oilfield services contributed five deals worth $1.4 billion.

Asset transactions dominated total M&A deal volume during the fourth quarter of 2012 with 56 deals, a continuation of a trend that PwC noted during the third quarter of 2012, marking the highest volume of asset transactions in at least ten years. Total deal value for those asset transactions represented $27.2 billion, the second highest value in ten years. For all of 2012, there were 158 asset deals worth $89.3 billion.

Also marking a ten-year high, there were 19 corporate transactions (with values greater than $50 million). Those deals had a total deal value of $29.0 billion during the fourth quarter of 2012. For full year 2012, there were 46 corporate transactions that contributed $56.9 billion.

According to PwC, there were 27 deals with values greater than $50 million related to shale plays in the fourth quarter of 2012, totaling $16.3 billion, an increase from the 22 shale-related deals during the fourth quarter of 2011, although total deal value was flat. For all of 2012, there were 77 shale deals that contributed $51.7 billion, an increase of two deals when compared to full year 2011, but a drop from the $72.7 billion in shale deal value from 2011. Included in the shale deals for fourth quarter 2012 were two transactions from the Marcellus Shale with a total deal value of $685 million and one Utica Shale deal worth $372 million.

PwC also notes that the volume of upstream and midstream shale deals increased in the fourth quarter of 2012 when compared to the same quarter in 2011. There were 17 total shale deals in the upstream sector, accounting for $9.0 billion, which was one more deal when compared to Q4 2011, although deal value had decreased from $12.3 billion last year. Midstream shale-related deals totaled 10 for the fourth quarter of 2012, representing$7.3 billion, an increase from the six midstream deals worth $4.0 billion during the fourth quarter of 2011.

“Throughout 2012, we continued to see a fair amount of repositioning and realignment with companies around midstream assets in the Marcellus Shale and Utica Shale as they looked to build the infrastructure needed to transport the extracted oil and gas,” said Steve Haffner, a Pittsburgh-based partner with PwC’s energy practice. “Given the disparity in commodity prices, we expect to see continued movement during the year from the Marcellus to the Utica, as the Utica is a more attractive play due to its higher liquid content.”

The most active shale plays for M&A with values greater than $50 million during the fourth quarter of 2012 include the Bakken in North Dakota, which had seven deals with a total value of $4.1 billion, followed by the Eagle Ford in Texas with six deals representing $3.1 billion.

“As we look out at the deal landscape throughout 2013, we believe the fundamentals are in place for continued transactions, including the potential for some very large deals to get done,” added Roberge. “The combination of independents who still control the majority of resources and the majors who have strong balance sheets and financial muscle may result in consolidation, as the capital requirements to develop shale plays continues to grow. We also expect PE to remain active in new investments.”

Foreign buyers announced nine deals in the fourth quarter of 2012, which contributed $3.2 billion, versus seven deals valued at $10.4 billion during the same period last year.

PwC’s Oil & Gas M&A analysis is a quarterly report of announced U.S. transactions with value greater than $50 million analyzed by PwC using transaction data from IHS Herold.

About the PwC U.S. Energy Practice

We focus on customizing three things- assurance, tax and advisory services- to meet the unique challenges of energy companies. How we use the knowledge and experience we’ve gained from serving the largest and most complex energy companies to the entrepreneurial start-ups depends on our clients’ goals and culture. Taking the time to get to know our clients and listening to their needs lets us use our energy team– of 3,100 people located around the world — to create the value our clients want.

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SOURCE PwC US