“There is combination between more traditional corporate investors achieving a geographical balance and across the energy value chain. For national companies, it’s security,”
The energy sector is experiencing a healthy trend in increasing merger and acquisition (M&A) activity worldwide. The value of deals taking place in the oil and gas sector is back up to pre recession levels.
Because “oil and gas will continue to constitute the majority of the world’s energy supply over the next 25 years”, according to a recent Deloitte report, securing a piece of this pie is driven not only by value creation, but also by reserve requirements for international companies. In addition, security of supply prerogatives for state-owned companies play a role, says Deloitte global oil and gas head Adi Karev.
This trend extends beyond oil and gas to the broader energy sector, such as energy utilities.
According to Rob McCeney, PwC energy & utilities partner , the trend applies to the entire energy value chain . Upstream exploration and production still dominates, but companies are also looking at midstream transportation and processing assets and, more recently, interest in power generation has picked up.
It is therefore not surprising that in an industry based on finite global resources and increasing demand, recent M&A trends point to a globalisation of the energy sector. In 2010, the number of deals in oil and gas rose 12%, to 443, while the value of these deals increased 25%, to US$227bn, according to Deloitte’s oil and gas 2010 M&A report. PwC research shows that in the energy utilities sector, the value of the deals concluded increased 19%, to $116bn, and the deal numbers rose from 596 to 670.
“There is combination between more traditional corporate investors achieving a geographical balance and across the energy value chain. For national companies, it’s security,” says McCeney.
These drivers are underpinning a rush of deal activity within and to North America (68% of the worldwide total), as industry players are drawn to unconventional assets, particularly shale gas. These deals are also driven by US players’ need for stronger balance sheets for capital expansion.
The buyers include oil and gas companies, Chinese concerns (which are majority state-owned) and private equity ventures. SA’s Sasol secured its position in the shale rush when it acquired 50% of Canadian company Talisman’s shale gas assets late last year.
In fact, one of the trends picked up in Deloitte’s oil and gas reality check report is an increasing trend in outbound acquisitions of Asian national oil companies. With companies willing to pay high prices, these acquisitions are mainly driven by a desire to secure supply .
“The Asian players have been doing this for years,” says Karev. “But their appetite has grown: deals are increasing in value and number. They are now directly competing with the international oil companies.”
This trend will have implications for Africa. Africa represents a small proportion of global energy M&A activity. “The continent has only attracted investment in oil, gas and coal, but not in electricity utility markets, where there has been significant investment in South American markets, for example,” says McCeney. South American utility markets are largely privatised, unlike Africa’s.
Naturally then, the appetite for investment in Africa has been for oil and gas, but even here the continent represents a level of regulatory and geopolitical risk that is much higher than in the Americas . The historical appetite for oil and gas on the continent, according to McCeney, is a function of the experience of investors in this high-risk environment.
The growing appetite of Chinese companies , however, is driven less by an economic impetus than by a desire to ensure an energy supply for the future . “[The Chinese] also don’t tend to be as concerned with the human rights issues, which mean less to them than the need for reserves,” says Karev.
He also points out that the focus has broadened from the traditional North and West African hotspots of Nigeria and Angola, to include countries like Kenya and Tanzania in East Africa . New producers are emerging, too, such as Ghana .
According to Deloitte, the Asian national companies may focus on West Africa for equity positions or to fund projects, because of the easier regulatory environment , new discoveries and the multitude of small firms.
South America is also attracting investment in countries such as Brazil, Chile and Colombia.
“Significant investments are being made by international companies looking for growth rates that are higher than in OECD countries,” says Bernardo Vargas, partner at Global M&A Colombia.
As investors continue to seek diversification, Karev expects these trends to continue strongly into 2011, signalling not only the need to secure energy sources into the future, but also that investors’ fears of a double-dip recession are waning.
Source: www.fm.co.za
The energy sector is experiencing a healthy trend in increasing merger and acquisition (M&A) activity worldwide. The value of deals taking place in the oil and gas sector is back up to pre recession levels.
Because “oil and gas will continue to constitute the majority of the world’s energy supply over the next 25 years”, according to a recent Deloitte report, securing a piece of this pie is driven not only by value creation, but also by reserve requirements for international companies. In addition, security of supply prerogatives for state-owned companies play a role, says Deloitte global oil and gas head Adi Karev.
This trend extends beyond oil and gas to the broader energy sector, such as energy utilities.
According to Rob McCeney, PwC energy & utilities partner , the trend applies to the entire energy value chain . Upstream exploration and production still dominates, but companies are also looking at midstream transportation and processing assets and, more recently, interest in power generation has picked up.
It is therefore not surprising that in an industry based on finite global resources and increasing demand, recent M&A trends point to a globalisation of the energy sector. In 2010, the number of deals in oil and gas rose 12%, to 443, while the value of these deals increased 25%, to US$227bn, according to Deloitte’s oil and gas 2010 M&A report. PwC research shows that in the energy utilities sector, the value of the deals concluded increased 19%, to $116bn, and the deal numbers rose from 596 to 670.
“There is combination between more traditional corporate investors achieving a geographical balance and across the energy value chain. For national companies, it’s security,” says McCeney.
These drivers are underpinning a rush of deal activity within and to North America (68% of the worldwide total), as industry players are drawn to unconventional assets, particularly shale gas. These deals are also driven by US players’ need for stronger balance sheets for capital expansion.
The buyers include oil and gas companies, Chinese concerns (which are majority state-owned) and private equity ventures. SA’s Sasol secured its position in the shale rush when it acquired 50% of Canadian company Talisman’s shale gas assets late last year.
In fact, one of the trends picked up in Deloitte’s oil and gas reality check report is an increasing trend in outbound acquisitions of Asian national oil companies. With companies willing to pay high prices, these acquisitions are mainly driven by a desire to secure supply .
“The Asian players have been doing this for years,” says Karev. “But their appetite has grown: deals are increasing in value and number. They are now directly competing with the international oil companies.”
This trend will have implications for Africa. Africa represents a small proportion of global energy M&A activity. “The continent has only attracted investment in oil, gas and coal, but not in electricity utility markets, where there has been significant investment in South American markets, for example,” says McCeney. South American utility markets are largely privatised, unlike Africa’s.
Naturally then, the appetite for investment in Africa has been for oil and gas, but even here the continent represents a level of regulatory and geopolitical risk that is much higher than in the Americas . The historical appetite for oil and gas on the continent, according to McCeney, is a function of the experience of investors in this high-risk environment.
The growing appetite of Chinese companies , however, is driven less by an economic impetus than by a desire to ensure an energy supply for the future . “[The Chinese] also don’t tend to be as concerned with the human rights issues, which mean less to them than the need for reserves,” says Karev.
He also points out that the focus has broadened from the traditional North and West African hotspots of Nigeria and Angola, to include countries like Kenya and Tanzania in East Africa . New producers are emerging, too, such as Ghana .
According to Deloitte, the Asian national companies may focus on West Africa for equity positions or to fund projects, because of the easier regulatory environment , new discoveries and the multitude of small firms.
South America is also attracting investment in countries such as Brazil, Chile and Colombia.
“Significant investments are being made by international companies looking for growth rates that are higher than in OECD countries,” says Bernardo Vargas, partner at Global M&A Colombia.
As investors continue to seek diversification, Karev expects these trends to continue strongly into 2011, signalling not only the need to secure energy sources into the future, but also that investors’ fears of a double-dip recession are waning.
Source: www.fm.co.za
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