Global oil and gas resources M&A market "volume and price fall"

Editor's note: In the first half of this year, despite the sharp rise in international crude oil prices, the global oil and gas resources M&A market tended to be weak, and the number and amount of M&A transactions were significantly lower than the same period in 2021
.
In the second half of the year, as high oil prices drive the profitability of various oil companies to continue to improve, debt levels continue to decrease, and the scale of dividends continues to expand, it is expected that the number and amount of upstream oil and gas asset mergers and acquisitions will return to the upward track
.

Overall, commodity prices are closely related to the number of mergers and acquisitions, and if commodity prices remain at current levels, oil and gas asset mergers and acquisitions are expected to be more active
in the second half of this year.
But a global recession that causes commodity prices to spiral down will dampen trading activity
.

$58/barrel

In the first half of this year, the average evaluation of oil prices in global oil and gas resource M&A transactions was about 58 US dollars / barrel, which is significantly higher than the average of
50 US dollars / barrel in 2021.

$37 billion

Global M&A investment was $37 billion in the first half of the year, down 57% from the second half of
last year.

105 cases

The number of global upstream M&A deals reached in the first half of this year was 105, down 29% from the second half of
last year.

$7.
4 billion

The amount of mergers and acquisitions in the Permian Basin in the first half of this year was $7.
4 billion, which was 54%
of the second half of last year.

203 cases

It is expected to close 203 deals by the end of the year, with a total M&A value of $204 billion
.

5.
979 billion barrels of oil equivalent

Seven major oil companies, bp, Total, Chevron, ExxonMobil, Shell, Eni and Equinor sold assets of 5.
979 billion barrels of oil equivalent, buying only 304 million barrels of oil equivalent
.

In early August, U.
S.
shale oil and gas producer Devon Energy announced plans to acquire some of Validus Energy's assets in the Eagle Ford shale zone for $1.
8 billion in cash, also having a positive impact on
the global oil and gas resources M&A market 。 However, on the whole, after entering 2022, due to the slow growth of global oil and gas exploration and development investment, the soaring geopolitical risks of some important oil-producing countries, the "OPEC+" production increase scale is lower than expected, and the continuous recurrence of the new crown epidemic in the world, international oil prices have maintained a high level and a sharp shock after experiencing a sharp rise of more than 60% in the first half of the year, which has a greater
impact on the global oil and gas resources M&A market.
On the one hand, despite the sharp rise in international crude oil prices, the global oil and gas resources M&A market tends to be weak, and the number and amount of M&A transactions are significantly lower than the same period in 2021
.
On the other hand, high oil prices have also raised the valuation of traded assets, and in completed M&A transactions, market analysis believes that there is a general valuation premium
.

According to the latest statistics of Wood Mackenzie, in the first half of 2022, there were 4 M&A transactions with a transaction amount of more than US$2 billion, of which U.
S.
shale oil and gas producer Oasis Petroleum spent US$3.
9 billion to acquire Whitin Oil, also located in the Barkon Shale Zone of North Dakota, and Centennial Resources Co.
, Ltd.
acquired Colgate Energy, also located in the Permile Delaware Basin, for US$3.
9 billion, which is the world's largest oil and gas M&A transaction
in the first half of the year 。 In addition, Chesapeake Energy's acquisition of privately held Chief's oil exploration and development company with its related assets for a total price of US$2.
7 billion, and PetroRio, Brazil's independent oil and gas exploration and development company, which acquired offshore crude oil assets in the Gompos Basin of PetroRio at a high price of US$2.
2 billion, are also the largest upstream oil and gas asset M&A transactions
in the first half of the year.

From the perspective of the number and amount of transactions, in the first half of 2022, the global oil and gas resources M&A market generally showed a clear trend
of "volume and price falling".
In terms of the number of transactions, the global oil and gas resources M&A activity in the first half of the year decreased significantly, reaching a total of 105 transactions, down about 29% from the number of M&A transactions in the same period in 2021, and also becoming the lowest number
of M&A transactions reached in the first half of the past 10 years except for the first half of 2020.
In terms of transaction amount, the global oil and gas resources M&A market reached a transaction amount of only US$37 billion in the first half of the year, down nearly 30% from US$52 billion in the same period of 2021, and significantly lower than the average of
US$45 billion in the same period of nearly five years.

From the perspective of transaction evaluation oil prices, according to Wood Mackenzie Company estimates, the average evaluation oil price of global oil and gas resources M&A transactions in the first half of the year was about 58 US dollars / barrel, which is significantly higher than the average of 50 US dollars / barrel in the same period of 2021, but also significantly lower than the average of the two international benchmark oil prices of Brent and WTI in the first half of
the year 。 On the one hand, after a wave of relatively large increases in international oil prices since the second half of 2021, the valuation expectations of asset sellers in the global oil and gas resources M&A market have generally increased, which has promoted the average evaluation of oil prices in M&A transactions in the first half of the year to rise significantly; On the other hand, although international oil prices have risen sharply in the short term, various factors such as the continuous recurrence of the new crown epidemic, the decline in global economic growth expectations, and the global energy transition have led some international oil companies to maintain a cautious upstream asset investment attitude at this stage, insisting on focusing on the actual value of oil and gas assets, which objectively limits the evaluation of oil prices in
M&A transactions.

From the perspective of transaction subjects, the overall transaction scale of various oil companies in the first half of 2022 declined, but there are still large differences in
performance.
Among them, large and medium-sized international oil exploration and development companies became the "active entities" in the global oil and gas asset M&A trading market in the first half of the year, with a total transaction amount of more than 20 billion US dollars; Asian national oil companies continued to be weak in the oil and gas asset M&A trading market in the first half of the year, and did not enter into any asset purchase transactions of more than US$100 million; International oil giants such as ExxonMobil, bp, Total, Shell, Eni and Chevron also showed no performance on the buying side of M&A transactions in the first half of the year, but on the asset sales side, ExxonMobil and international oil giants such as BP and Total jointly divested nearly $5 billion of upstream assets
.
It is worth mentioning that compared with upstream investment in oil and gas, international oil giants have acquired more than $8 billion in new energy assets in the first half of 2022, including renewable energy power generation projects totaling more than 19 GW, as well as some new materials, energy storage and biomass fuel development projects
.

From the perspective of transaction area, North America is still the hot spot of the global oil and gas resources M&A market in the first half of 2022, with a total of nearly 70 M&A activities, which is basically the same as the same period in 2021, of which 5 transactions with a transaction amount of more than US$1 billion are 5 cases, all related to unconventional oil and gas assets; The M&A transaction was valued at approximately US$24.
4 billion, down more than 40%
from US$41.
9 billion in the same period in 2021.
In addition, from the perspective of resource type, shale oil-related M&A transactions fell sharply by about 50% compared with the same period in 2021, with a total amount of less than $7 billion; In addition to the Permian Basin, shale belts such as Bakken and Naiebla also became the most active areas for shale oil and gas-related M&A transactions in the first half of the
year.
In the first half of the year, the oil and gas resources M&A market in Europe was relatively active, with more than 10 M&A transactions completed, the highest level
since 2019.
Among them, international oil giants such as ExxonMobil and Norwegian Statoil have each divested non-core oil and gas assets in Europe for more than $1 billion, creating upstream asset acquisition opportunities
for European local oil companies such as Romanian Natural Gas and Norway's Sval Energy.
The oil and gas resources M&A market in Africa was also more active in the first half of the year, with 14 M&A transactions completed, the highest level
since 2014 in the same period.
Among them, there were 5 oil and gas asset M&A activities in Angola and Egypt, respectively; The acquisition of ExxonMobil Nigerian oil and gas assets by local Nigerian company SEPLAT Oil & Co.
, for more than $1.
28 billion became the largest M&A deal
in Africa in the first half of the year.
In Latin America, despite the number of M&A deals in the first half of the year being only 6, the total deal value exceeded $4 billion, the highest value since 2017 in the same period, and Petrobras became the largest seller
in the region in the first half of the year.

The author believes that although the global oil and gas resources M&A market in the first half of the year showed a sluggish trend of "volume and price falling", as a resource-based industry, oil and gas reserves have always determined the core value of oil companies, especially in the world's conventional oil and gas discovery of new reserves in recent years to maintain a decreasing trend, through mergers and acquisitions to obtain high-quality upstream assets is still an important way for international oil companies to
ensure the reserve holding 。 In the second half of the year, as high oil prices drive the profitability of various oil companies to continue to increase, debt levels continue to decrease, and the scale of dividends continues to expand, it is expected that the number and amount of upstream oil and gas asset M&A transactions will return to the upward track, and there will be more than $5 billion in "super M&A" transactions in North America, Africa and Europe
.

(The author is deputy director of the Strategic Planning Institute of Sinopec Exploration Institute)