Merger, Acquisition Wave Sweeping Shale Sector Bound To Surge
JULY 22, 2011, 7:36 A.M. ET.
?The rising tide in mergers and acquisitions in North American shale sector is expected to continue surging. ?Buyers could include Asian state-owned companies bullish on the long-term recovery of natural gas prices. ?Natural-gas prices in the U.S. have remained depressed due to an overabundance of supply due to the shale boon.
HOUSTON (Dow Jones)?A wave of multibillion-dollar deals by major oil companies has swept the North American shale oil-and-gas sector during the last few years. The rising tide is expected to continue to surge.
So-called shale oil and gas, which are extracted by fracturing the underground rock and then pushing water through cracks to release hydrocarbons, has seen the total value of deals in the U.S. shale sector rise from $15 billion in 2008 to more than $50 billion in 2009, a year when Exxon Corp. (XOM) announced it purchase of XTO Energy. Deal value totaled more than $38 billion in 2010, according to consultancy IHS Herold.
To date, including the mid-July $15 billion proposed takeover of Petrohawk Energy Corp. (HK) by BHP Billiton (BHP), transaction value in the shale sector has garnered about $33 billion, nearing the total for all of 2010, IHS Herold said.
And more deals are expected. The shale market will continue to attract long-term strategic-minded international investments by well-funded global international oil companies. It will also attract Asian state-owned companies bullish on the long-term recovery of natural gas prices, experts said. Natural-gas prices in the U.S. have remained depressed, trading at about $4 per million British thermal units, due to an overabundance of supply caused by the shale boom. Natural gas prices abroad have been trading higher.
?North American assets are in demand,? says Dan Pickering, chief energy analyst at Tudor, Pickering & Holt. ?The combination of visible growth, long-lived assets and a reasonable regulatory regime is attractive to buyers and will continue.?
International oil companies are expected to continue adding to their recently acquired shale-gas positions. They will also expand their foothold in oil-and-liquids rich shale properties to boost their hydrocarbons reserves. At the same time, state-owned oil companies, some of which already have venture partnerships with independent producers, are seen becoming operators by acquiring entire companies.
?Overtime many of the Asian national oil companies that are currently joint venture partners will aspire to become operators,? said Adam Waterous, head of Scotia Waterous, the oil and gas merger and acquisitions division of Scotia Capital. ?These guys are very good students.? The bank advised BHP on the Petrohawk deal and on the purchase of Chesapeake Energy Corp.?s (CHK) shale assets in Arkansas. Some joint-venture partners with enough resources to continue expanding include Cnooc Ltd. (CEO, 0883.HK), China?s biggest offshore-oil producer, which has a agreement with Chesapeake in oil-and-gas rich shales in Texas and Nebraska. France?s Total SA (TOT) and Norway?s Statoil ASA (STO) are also partners of Chesapeake in various shales across the U.S., while Korea National Oil Corp. has a joint venture agreement with Anadarko Petroleum Corp. (APC) in Texas. India?s Reliance Industries Ltd. (500325.BY) became partner with Chevron Corp. (CVX) in the Marcellus Shale after the oil giant closed its purchase of Atlas Energy this year.
Possible buyers could also include large independent oil and production companies that are eager to acquire shale assets to improve their production growth profile, says Jim Dillavou, a merger-and-acquisition transaction partner at consultancy Deloitte & Touche LLP.
Marathon Oil Corp. (MRO), which became an independent producer in July after spinning off its refining arm, recently paid $3.5 billion for 141,000 acres in the Eagle Ford in Texas, one of highest prices paid for oil shale assets. Marathon?s move was driven by its need to boost its production growth estimates. Oil giant ConocoPhillips (COP), which announced last week it will split into two stand-alone companies next year, could find itself in the same position, says Sterne Agee & Leach analyst Michael McAllister. ?They may have to go and acquire growth,? he said.
On the other hand, takeover targets include exploration companies like Range Resources Corp. (RRC), Whiting Petroleum Corp. (WLL) and Cabot Oil and Gas Inc. (COG), which have vast shale resources in U.S. basins, says Fadel Gheit, an analyst at Oppenheimer and Co.
There have been attempts at shale deals outside the U.S. as well. A $5.5 billion proposed investment by PetroChina Co.?s (PTR) in a big shale-gas project in Canada, led by Encana Corp. (ECA), fell apart last month. That deal faltered on technical issues related to the investment, according to both sides, but experts said interest in Canada shale gas will continue.
The recent string of deals show focus on shale oil and gas resources in North America, Gheit said. ?This trend will continue and may accelerate, and the question now is, who is next??
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