Second Quarter Oil & Gas Deals Top $42 Billion as Companies Pile into Shale Gas

July 19, 2010 - PRLog -- US Shale Gas Attracts Global Attention

The total value for the quarter is the second largest in the past three years (the biggest being Q4 2009, a quarter dominated by ExxonMobil’s $41 billion acquisition of XTO Energy) and has been strongly driven by increasing interest in the US shale sector from domestic and international companies alike. In total $12 billion worth of US shale gas deals were announced which represented over one quarter of global E&P deals.

The shale gas sector accounted for the largest deal announced during the quarter with Royal Dutch Shell making their initial foray into the sector with its giant $4.7 billion acquisition of Marcellus shale gas specialists, East Resources, Inc.. Shell will instantly own over a million acres of prospective shale gas lands from this transaction, owning a shale gas portfolio that can only be bettered amongst the super-majors by ExxonMobil.

Another company making a bold entrance to into the US shale scene was Indian conglomerate, Reliance Industries who farmed into two shale plays, the Marcellus shale in Pennsylvania with Atlas Energy, and the Eagle Ford shale in Texas with Pioneer Natural Resources. In total, Reliance has committed to spend $2.8 billion in cash payments and cost carry for their partners and will team up with two companies with significant experience in shale gas extraction.

A major part of the motivation for Reliance for the deals is for the company to gain experience in extracting gas from shale, with the US being far and away the leader in this field.  Reliance’s home country, India, is estimated to contain abundant shale resources which have the potential to contain reserves in excess of the country’s conventional resources.  Due to government imposed restrictions, unconventional resources in India have so far been substantially untapped with little exploration or development taking place. However on the back of the success of the US shale gas plays, the government has recently declared that policy will be in place for companies to take advantage of the resource within a year. At that time Reliance will aim to have a clear advantage over its domestic peers. Already in Q3 2010 rumours are circulating that Reliance has lined up a third billion dollar US shale gas farm in.

Shale Gas Buzz Reflected in Lease Sales

The buzz of the shale sector also extended to government lease auctions with sales within shale areas attracting record bids. This was evident in the latest Michigan lease sale in the Collingwood shale which reaped $178 million, a record for the state and just under the $190 million raised in the past 81 years combined. The June 2010 British Columbia lease sale that focused on the Montney shale play attracted C$404 million dollars of high bids whilst Alberta’s latest lease sale in the Duvernay shale announced in early July grossed C$451 million of bids.

Oil Sands Attracts Chinese Investment

The Canadian oil sands sector attracted US$5.5 billion worth of deals during the quarter. The vast majority of this value came from two deals, with Sinopec acquiring ConocoPhillips’ 9% interest in Syncrude for $4.65 billion and China Investment Corp acquiring a 45% interest in Penn West Energy Trust’s Peace River assets for $780 million. After CNOOC’s failed acquisition of Unocal in 2005 due to strong public and political opposition, government-backed Chinese companies have been developing a portfolio of global assets via more low-key acquisitions of a variety of non-controlling and partial interests. Within Canada the focus of the assets deals from Chinese companies have been on Oil Sands projects with four significant acquisitions taking place since 2009.

Horizon Fallout Threatens Offshore Asset Deals

Offshore assets attracted $9.4 billion worth of deals during the quarter with two companies accounting for over two thirds of the value. Sinochem acquired a 40% interest in the Peregrino field offshore Brazil for $3 billion and Apache acquired Gulf of Mexico assets for $1.05 billion from Devon and agreed to acquire Mariner Energy for $3.9 billion (of which approximately 65% of the value is attributable to Gulf of Mexico assets). Both of the Apache acquisitions were negotiated and announced before the deepwater Horizon oil rig explosion and subsequent mass leak of oil which to date has still not been successfully plugged. The fallout of the leak put the safety merits of deepwater Gulf of Mexico exploration onto the political agenda and led to a suspension of deepwater drilling while new safety measure were devised. The acquisition of Devon’s assets closed in June despite these measures due to the assets lying in shallow waters. The acquisition of Mariner Energy which includes deepwater assets has not yet closed and Mariner Energy is still trading below Apache’s offer price. This is indicative of the apprehension in the market that the deal may be scuppered by new regulations, possibly increasing operating costs and decreasing drilling opportunities.

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