Posted on 7/27/2005, 7:56:52 PM by rockthecasbah
It's good to be a seller.
Thanks to high oil and natural gas prices and depleting reserves, energy asset shoppers around the world are willing to pay more for every barrel they buy, according to the latest merger and acquisition report on the exploration and production business.
Oil patch consultant John S. Herold and energy advisory firm Harrison Lovegrove & Co. teamed up to publish the 2005 Global Upstream M&A Review,
which found $68 billion worth of assets and companies changed hands in 2004 -- up 50 percent over 2003.
It was the first noticeable increase in transaction values since 1998 after a five-year decline.
And the price paid for those oil and gas reserves around the globe shot up last year, too. In 2004, the median price for one barrel of oil equivalent was $9.78, up 40 percent from 2003, according to the report.
North America dominated the deal sheet, accounting for 56 percent of last year's volume. Within that category, Rocky Mountain resources and Canadian oil sands properties were the assets to watch.
"I think it will continue to be a really hot sellers' market," said Christopher Sheehan, director of merger and acquisition research at John S. Herold. "Underpinning that are the high commodity prices. Buyers can look at the strip pricing and make pretty aggressive assumptions. They use hedging in the short term to lock in returns."
This is no one-year bubble. The deal pipeline is still full.
Sheehan said the volume of deals in the first half of 2005 has already exceeded the entire year for 2004. In North America alone, more than $25 billion of asset sales have already gone on the books this year.
"You need to replace your reserves in this business. The market offers that quick fix," he said.
In Europe, North Sea deals accounted for nearly 70 percent of total transaction value last year.
Even though the deal count was at a five-year high, the pace of asset sales in Europe -- and other mature basins -- was not at the level many analysts had predicted.
That's because many big oil companies are choosing to hang on to their assets to help them meet production targets -- promises to Wall Street about performance -- instead of selling. With high oil and gas prices keeping company coffers full, it is easier for some companies to keep pumping marginal fields than it is to find new resources.
"If the drill bit performance really improves for them, then you may see some of the more marginal assets being sold," Sheehan said.
Michael Bridden, a director at Harrison Lovegrove in London, said a drop in oil prices might trigger more asset sales, but then some mature basins would be hard-pressed to find buyers.
"Nobody's going to reward a company right now for having a pile of cash," he said. "Selling assets is something which, if you've already got your leverage levels down and you're buying a lot of your own stock in the market, then there's not a huge incentive for you to sell off some assets, even if there are operational reasons to do so."
Uh, for every buyer, there was a seller.
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