NEW YORK--(BUSINESS WIRE)--Global upstream oil and gas M&A transactions totaled $32 billion in Q1 2018, supported by strong U.S. activity focused on the Permian Basin, according to oil and gas information provider 1Derrick. Deal value in Q1 2018 was less than half the record-setting $63 billion in Q1 2017, but on par with deal value run rate during in Q2-Q4 2017. U.S. deal value rebounded from a weak $19 billion in second half 2017 to reach $22 billion. In contrast, International deal value excluding the United States was just $10 billion for the quarter, down from $38 billion a year ago.
“The highlight of the first quarter was Concho Resources’ $9.5 billion purchase of fellow Permian producer RSP Permian, the largest U.S. corporate deal since 2012 and the largest ever Permian transaction“, said Mangesh Hirve, COO of 1Derrick. “After a three-quarter hiatus following $39 billion in deals in Q3 2016 through Q1 2017, M&A activity is once again heating up in Permian, the premier U.S. resource play.” He added, “In contrast, international activity slowed down dramatically across all regions, with no single deal exceeding $1 billion.”
The largest international transaction was Mubadala’s $934 million purchase of a 10% interest in Egypt’s Zohr gas field from Eni. Notably, Majors participated in seven of the top 20 transactions, with divestitures by Shell in Thailand, New Zealand and Iraq accounting for approximately $2 billion, or nearly 20% of the quarterly International deal value. Total S.A. acquired an interest in the Waha concession in Libya while selling small interests in Canada and Norway. The key driver in the steep drop in international activity was lower Canadian oil sands and North Sea deal flow, which plunged to $1.1 billion and $0.69 billion in Q1 2018, respectively, after totaling $24.4 billion and $5.3 billion in Q1 2017. “However,” Mangesh Hirve commented, “we expect international M&A to rebound through 2018, driven by the $10-$11 billion in North Sea assets and $6-$7 billion in Canadian oil sands assets that are currently on the market.” Early in Q2, Linda Cook’s Harbour Energy, backed by EIG Global Energy Partners, made a $13 billion bid to acquire Australia’s Santos.
Three US transactions in Q1 2018 exceeded $1 billion, topped by the blockbuster $9.5 billion Concho/RSP Permian deal. Special purpose acquisition entity-TPG Pace Energy acquired EnerVest’s Eagle Ford assets for $2.66 billion and private equity-funded Admiral Permian purchased Delaware Basin acreage from Riverstone backed-Three Rivers Operating III for an estimated $1.15 billion. Public companies accounted for 15 divestitures in the top 20 US deals, with private equity funded firms acquiring 40% of these assets. Other buyers included two international firms, with South Korea’s SK Innovation purchasing STACK assets for an estimated $300 million and Australia-listed Sundance Energy spending $222 million for Eagle Ford acreage. Overall, Permian deals dominated the quarter, with 9 transactions accounting for nearly two-thirds of the total top 20 value.
Concho’s purchase of RSP Permian to become the largest unconventional oil and gas producer in the Permian Basin has spurred widespread speculation that the massive deal will trigger a wave of corporate consolidation in the region. 1Derrick’s Mangesh Hirve pointed out, “We believe this is a landmark transaction, where RSP Permian’s acreage, built up through multiple transactions since 2014, is contiguous to Concho’s and will generate an estimated $2 billion net present value in synergies. It is the search for these synergies that will drive further consolidation in the play.”
Private Equity backed firms and publicly traded companies provide a plethora of Permian consolidation opportunities. 1Derrick’s proprietary Private Equity Database lists 130 firms operating in the Permian, including 72 that have received a total of $13.2 billion in equity commitments from the top eight investment firms. Even though oil prices have stabilized in the $60 per barrel range in 2018, the S&P E&P index has fallen nearly 20% from its December 2016 high. The lower equity valuations provide opportunities for acquisitions among the more than 35 publicly-traded E&Ps which will produce 1 million boe or more in the Permian in 2018.
1Derrick/Derrick Petroleum Services (www.1derrick.com) is an independent oil and gas research firm with offices in Houston, London, Singapore and Bangalore. For more information on its industry leading databases and reports on M&A, business development strategy, new ventures, and exploration, please contact Ajit Thomas at Ajit.Thomas@1Derrick.com or 1.646.284.8661