BP Leak, Permin Basin Opportunities Drive Acquistions and Divestitures

This year is expected to be a big 12 months for acquisitions, divestitures and mergers in the United States oil and gas industry.

Some 154 merger and acquisition (M&A) transactions took place in the third quarter of the year, totalling $43.8 billion (£27.7 billion), a report by PLS and Derrick Petroleum Services revealed recently. By the end of the year this is expected to exceed $150 billion.

North America led this activity with 100 transactions in the region alone and Asia, Europe (including the North Sea) and South America followed based on dollar value.

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The report cited BP's Deepwater Horizon disaster asa major factor in the activity during the third quarter, as the company looked to shed assets in Egypt, Colombia, Canada, and the Permian Basin to offset the costs of the operation.

Richard Mason, director of research at PLS, said, "Divestitures among the majors and resurging interest in the oil-rich Permian Basin characterised an otherwise slow market in global transactions during the third quarter."

He added the "healthy volume" of deals on the market "should allow 2010 deal-making to finish at the highest level in three years."

Permian Basin Activity

The Permian Basin in Texas experienced a resurgence of activity in recent months, particularly in the oil and natural gas liquids sector, according to the report.

Joint venture transactions were also said to be growing in popularity.

"Buyers and sellers still find the JV business model an attractive way to bring value forward for sellers in oil and gas plays that require substantial upfront capital investment while simultaneously providing participation in frontier plays for buyers," said Mason.

The Apache Corp. was responsible for acquiring BP's assets in the region, taking on 10 fields capable of producing 141 million barrels of oil equivalent (boe). The acquisition was part of a wider plan to own all BP's assets in the Permian basin and Egypt's Western Desert, followed by the reserves in western Alberta and British Columbia in Canada. Net production from the reserves in 2010 totalled 83,000 boe per day.

Concho Resources has also been involved in acquisition activity within the Permian Basin. The company gained all the assets from the Marbob Energy Corp., which have proven reserves of 76 million boe and include 2,300 identified drilling locations.

Timothy A Leach, Concho's chairman, chief executive officer and president, said, "After closing, we plan to increase the activity level and rig count on these acquired properties, which should result in significant production growth over the next several years."

Shale Gas Acquisitions

Acquisition activity is also strong within the United States shale gas sector. Wood Mackenzie's latest corporate analysis revealed total spend in shale gas M&A was equivalent to one-third of global upstream M&A investment during the first half of 2010, totalling $21 billion.

Luke Parker, manager of Wood Mackenzie's M&A research servicesaid these high levels of activity are likely to continue for some time.

"The drivers that make shale gas so attractive – world-scale resource, robust economics, access opportunities and limited above-ground risk – are as strong as ever," he said.

Looking ahead, Parker predicted the major players are likely to dominate the market, adding that oil and gas prices could affect activity.

"There's scope for intra-play and sector-wide consolidation, facilitated by mounting pressures on existing players to evaluate and restructure their portfolios as strategic priorities evolve," he said.

Reliance, India's largest private company, has been making significant investments within the United States shale gas industry in recent months.

Most recently, the company entered into a joint venture with Carrizo Oil & Gas for the Marcellus Shale development in Pennsylvania. Carrizo retained a 40 percent interest in the acreage, while Reliance owns 60 percent.