PwC: International investment in US shale plays surge, drive M&A activity

Posted on 13 December 2011

By Joanne Liou, editorial coordinator

Investments in US shale plays by companies worldwide are shaping the merger and acquisition (M&A) environment for the country’s energy market. “It’s all about shale, and all the international companies want a piece of the shale,” Rick Roberge, a PricewaterhouseCoopers (PwC) transaction services energy group partner, said at the PwC Professional Forum in Houston on 1 December.

In the last four years, companies from all over the world made 40 investment deals in US shale plays totaling more than $60 billion.

International investment in US shales is leading the M&A world, with 40 deals completed in the past four years, including 33 in the last two years alone, totaling $60 billion. From European to Chinese to Indian companies, “there isn’t hardly an international company missing, other than the Russians,” Mr Roberge said. “Twenty-two of those 40 deals have been joint ventures (JVs), where international companies pay all the CAPEX and the US independent gets carried fully.”

The values of the investments have steadily risen, and the price tag attached to the acreage has increased across the board, from the Niobrara to the Bakken to the Eagle Ford. In the richest part of the Eagle Ford, for example, a deal was signed in June between Marathon Oil and Hilcorp Energy for $21,000/net acre. Mr Roberge described a scenario where an average farmer in the Eagle Ford has five sections of land with 3,000 acres. “At $20,000 per acre for the right oil company to come out and drill, that’s $60 million.”

This surge in investment from companies outside the US will most likely level off, however. “Everyone’s done a deal now,” Mr Roberge explained. “A lot of these companies want to learn from the US independents on how they’re fracking and how they’re able to get the gas out of the shale. The fact is, it takes a lot of capital to develop all these shales, and a lot of these mid-size, smaller independents are not going to have the capital to keep going and going.”

Although there is some uncertainty in the pace of international investments in the coming year, there is no doubt that shale activity will continue. “The investment will be directed to oil shale because oil is $100 and gas is $3.50,” Mr Roberge said.

Private equity companies have also become major players in the oil and gas sector, with more activity in upstream markets than ever before. “Every major New York private equity house wants in energy and are getting involved in energy,” Mr Roberge said. “Many of them have opened Houston offices, and if they haven’t already, they’re planning to.” There are indications that private equity could be major sellers in the next 12 to 18 months as well, capitalizing on market interest to monetize portfolio investments.

 

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