Oil and Gas global dealsA strong close to the year for global activity

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April 2013

PwC | Oil and Gas global deals | 1

Global oil and gas deals H2 2012

The second half of 2012 has seen the highest number of global oil and gas deals since 2008, and the highest in value terms since 2010. There were 524 global oil and gas deals in H2 2012, totalling $240.3bn, bringing the 2012 full year figures up to 915 deals totalling $352.2bn. Deal volumes were up 23% on the prior year, but remain 21% off peak levels.

This activity was driven by a significant rise in top tier deals, with 44 deals valued at over $1bn compared to 31 in H1 2012. The majority of these were upstream related with Rosneft’s acquisition of TNK-BP (separately acquiring 50% stakes from BP and an Access Industries consortium) the largest. The deal means Rosneft will now control 40% of Russia’s oil output.

In addition to the two Rosneft deals, the upstream sector continued to perform strongly. CNOOC announced its acquisition of Canadian based Nexen for $20.7bn, completing the transaction in February 2013 after a lengthy regulatory approval process. The acquisition is the largest ever takeover by a Chinese company. Importantly, from a UK perspective, it provides CNOOC with operating control of the UK’s largest oilfield discovery of the last 25 years (Buzzard) and demonstrates the attractiveness of the UKCS to the National Oil Companies. The second half of 2012 also included significant deals on the UKCS for Sinopec (Talisman UK) and TAQA (various BP assets). In the US, Freeport-McMoRan Copper & Gold Inc’s $17.4bn announced

the acquisition of Plains Exploration and Production Company, whose asset base is spread across California, Texas, Louisiana and the Gulf of Mexico.

The oilfield services sector showed a strong upturn in deal flow with 62 deals totaling $14.7bn compared to H1 2012’s 42 transactions at $7.3bn. The standout deal in the sector was SapuraKencana’s $2.9bn acquisition of Seadrill’s tender rig operations. The acquisition will increase the size of SapuraKencana’s fleet by 16 (with a further five under construction) and allow Seadrill to reinvest the net proceeds into expansion of its deepwater and jack-up fleets.

Activity in the drilling sector has been buoyant over the last few years with mega deals allowing companies to quickly increase fleet sizes as order books in the main ship yards remain full in the medium term. Transocean’s $1.4bn acquisition of Aker Drilling and Ensco’s $8.7bn acquisition of Pride International are recent examples (both 2011 transactions). Transocean has also been a seller in recent times; it offloaded 38 shallow water rigs to Shelf Drilling in a $1bn deal. Shelf is private equity backed by Castle Harlan, CHAMP and Limerock.

The oilfield services sector continues to attract a high level of interest from the major PE Houses, with KKR acquiring Acteon Group in December 2012, and First Reserve acquiring Ameriforge in North America, both for undisclosed sums.

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The midstream sector performed slightly better in the second half of 2012 with 35 deals totalling $18.2bn compared to 20 for $12.7bn in H1 2012. Total deal value for the full year was some distance from the highs of 2011, principally due to the effect of several exceptional deals in the sector during the prior year. Top billing in H2 2012 went to Tallgrass Energy Partners’ $3.3bn acquisition of various assets from Kinder Morgan Energy Partners including Kinder Morgan Interstate Gas Transmission, Trailblazer Pipeline Company, gas processing facilities in Wyoming and the company’s 50% interest in the Rockies Express Pipeline.

Downstream deal volume rose in the mid market, with total deal value dropping from $22.1bn in H1 2012 to $11.5bn in H2 2012. Notable transactions in the period were BP’s divesture of the Carson oil refinery to Tesoro Corporation for $1.2bn and Gulf Oil Corp’s $1bn acquisition of specialty chemicals maker Houghton International from AEA Investors.

Looking forward into 2013 we anticipate the recent trend of top tier upstream deals to continue, with some industry commentary signalling conditions are ripe for a further round of tie ups between the oil majors. Whilst the economic conditions are very different, comparisons have been made to the

period in the late 1990’s which saw mergers between the likes of BP/Amoco, Exxon/Mobil and Chevron/Texaco.

With oil prices stable for the last few years, and ever increasing energy demand, the market conditions look highly positive in the medium term which should lead to further M&A activity across all sectors of the industry. The shale revolution has had an impact on global deal volumes in recent years; however the underlying impact on oil prices has yet to be fully understood. Recent reports suggest that the price impact could vary by region and may even lead to price decreases (see our report Shale Oil: the next energy revolution). Even in this scenario, the rationalisation of portfolios will support deal activity.

Number of global deals

Period Number Value Average value

Q1 2008 346 55.1 0.16

Q2 2008 328 86.1 0.26

Q3 2008 295 89.7 0.30

Q4 2008 192 71.9 0.37

Q1 2009 144 62.3 0.43

Q2 2009 208 55.6 0.27

Q3 2009 244 42.2 0.17

Q4 2009 251 88.4 0.35

Q1 2010 213 88.1 0.41

Q2 2010 228 68.3 0.30

Q3 2010 180 121.2 0.67

Q4 2010 195 106.6 0.55

Q1 2011 161 73.5 0.46

Q2 2011 200 47.3 0.24

Q3 2011 169 74.1 0.44

Q4 2011 213 104.6 0.49

Q1 2012 193 63.7 0.33

Q2 2012 198 48.2 0.24

Q3 2012 241 85.7 0.36

Q4 2012 283 154.6 0.55

2008 total = 1,161

2008 total = 302.8

2009 total = 847

2009 total = 248.5

2010 total = 816

2010 total = 384.2

2011 total = 743

2011 total = 299.5

2012 total = 915

2012 total = 352.2

PwC | Oil and Gas global deals | 3

Last twelve months deal volumes and values

H2’12 – Deal size H2’12 – Total number of deals

21%

10%

69%

< $250m $250 - $1bn > $1bn

53%

4%

5%

5%

5%

5%

10%

7%

6%

North America International Asia-Pacific

Australia

Middle East

South and Central America

Africa

Europe

Former Soviet Union

200

400

600

800

1,000

1,200

150

100

50

200

250

350

400

450

No

of

dea

ls

Dea

l val

ue $

bn

Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12

< $250m $250 — $1bn > $1bn Deal value

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H2’12 – Deal value by sector

Global M&A volume

Global M&A activity

76%

8%

6%

10%

Upstream

ServicesMidstream

Downstream

20

40

60

100

80

120

160

140

50

100

150

250

200

300

350

400

Dea

l vo

lum

e

$ b

oe

Q1 Q2

2006 2007 2008 2009 2010 2011 2012

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Upstream Midstream Downstream Brent crude price Henry hub gas price

Services

Dea

l vo

lum

e ($

bn)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2008 2009

Upstream

2010 2011 2012

40

20

60

80

120

100

140

160

180141.2 161.6 117.9 130.6 156.5 227.8 178.7120.8 111.9 240.3

Midstream Downstream Servcies

PwC | Oil and Gas global deals | 5

Rank Buyer Target Seller(s) Territory Value $bn

Sector

1 Rosneft 50% of TNK-BP Access Industries; Alfa Group Consortium; Renova Group; TNK-BP Ltd.

Former Soviet Union

30.7 Upstream

2 Rosneft 50% of TNK-BP BP plc; TNK-BP Ltd. Former Soviet Union

29.3 Upstream

3 CNOOC Limited Nexen Inc. Nexen Inc. Canada 20.7 Upstream

4 Freeport-McMoRan Copper & Gold Inc.

Plains Exploration & Production Co.

Plains Exploration & Production Co.

United States – Diversified

17.4 Upstream

5 Petroliam Nasional Berhad

Progress Energy Resources Corp.

Progress Energy Resources Corp.

Canada 5.9 Upstream

6 Plains Exploration & Production Co.

Interests in Gulf of Mexico

BP plc United States – Gulf of Mexico

5.6 Upstream

7 ONGC Videsh Ltd.; Oil & Natural Gas Corp Ltd

Interests in Kazakhstan

ConocoPhillips Former Soviet Union

5.0 Upstream

8 Nucor Corporation; Nucor Energy Holdings, Inc.

Interests in onshore natural gas wells

Encana Corporation United States – Rocky Mountains

3.6 Upstream

9 Tallgrass Energy Partners, LP

Various midstream assets – USA

Kinder Morgan Energy Partners LP

United States – Rocky Mountains

3.3 Upstream

10 Exxon Mobil Corporation

Celtic Exploration Ltd.

Celtic Exploration Ltd.

Canada 3.3 Upstream

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Buyer Seller Deal value ($bn)

Year

KNOC Dana Petroleum 3,740 2010

Apache Exxon Mobil 1,750 2011

Centrica Venture Production 1,747 2009

Sinopec Talisman Energy 1,500 2012

EnQuest Lundin Petroleum AB; Petrofac 1,274 2010

TAQA BP 1,058 2012

Dyas UK Oranje-Nassau Groep 840 2009

Total GDF Suez 802 2011

Eni SpA GDF Suez 802 2011

TAQA ExxonMobil; Shell 631 2008

Spotlight on UK North Sea

Top 10 UK North Sea Deals 2008–2012

UK North Sea Upstream deal activity

2

1

3

4

5

6

7

No

of

dea

ls

Dea

l val

ue $

bn

5

10

15

20

25

30

35

2008 2009 2010 2011 2012

Deal volume Deal value

PwC | Oil and Gas global deals | 7

While North Sea deal volume over the last five years has remained fairly consistent (with the exception of 2010, when the industry felt the effects of the global downturn) we have seen a rise in deal value with a steady increase in ‘mega deals’.

The increase in deal value can be attributed to a combination of strong independents with attractive assets, and divestment of the super majors allowing some of the world’s National Oil Companies (NOCs) to enter the North Sea.

The trend began in 2008 when TAQA (the Abu Dhabi National Oil Company) acquired assets from Shell and Exxon Mobil for a reported $631m. This was followed by several smaller acquisitions from Premier Oil and Sterling Resources and the $1.1bn acquisition of a number of BP’s North Sea assets including interests in the Harding, Maclure and Devenick fields. The BP deal, which completed in December 2012 added a further 21,000 boe p/d of production to TAQA’s already extensive portfolio.

The largest and most publicised deal of the last five years was 2010’s hostile takeover of Dana Petroleum by the Korean National Oil Company (KNOC) for $3.7bn. Since the deal, KNOC has made further acquisitions under the Dana brand, including the Guillemot and Scott fields from Petro-Canada, and Triton area from Hess in 2011 and 2012 respectively.

More recently, the North Sea has attracted interest from the Chinese NOCs with Sinopec acquiring a 49% stake in Talisman Energy’s North Sea business (which has since been rebranded Talisman Sinopec Energy UK) and CNOOC acquiring Canadian based Nexen, both in December 2012.

Aside from the NOCs, deal activity has been driven by the rebalancing of asset portfolios by the majors, as some look to free up cash to focus investment on new territories. Encouragingly there has been a high level of interest, not only from the NOCs but also other major oil companies.

Tax incentives, clarity over the extent of tax relief for decommissioning costs, and portfolio rationalisation all have a big part to play. These, coupled with an ever increasing worldwide energy demand, mean that we expect this level of interest to continue for some time to come. With an estimated 15–24 bn boe of recoverable oil remaining in the North Sea, and recent press suggesting a period of increased production to 2017 on the back of West of Shetland assets, the continued interest in the UK is justified.

Deal activity in the upstream service sector, although smaller in value terms than exploration and production, feels healthy, although it was noticeable in 2012 that not all deal discussions reached a successful conclusion. Partly this was down to differences of opinion relating to value, with the views from funders being supportive but below peak levels. Many private equity funds continue to monitor the sector hoping to follow recent deal completions from funds such as AEA, Investcorp and LDC.

Source: John S.Herold, Inc. ‘M&A database’, PwC analysis, EIA website

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Contacts

Drew StevensonTel: +44 0141 355 4110Email: drew.stevenson@uk.pwc.com

Alan BarrTel: +44 01224 253 181Email: alan.barr@uk.pwc.com

Neil LeppardTel: +44 020 7804 3168Email: neil.leppard@uk.pwc.com

Jon ShelleyTel: +44 01224 253 194Email: jonathan.g.shelley@uk.pwc.com

Robert AitkenTel: +44 01224 253 129Email: robert.aitken@uk.pwc.com

Richard SpilsburyTel: +44 01224 253 214Email: richard.j.spilsbury@uk.pwc.com

Tony SkrzypeckiTel: +44 020 7804 5500Email: tony.skrzypecki@uk.pwc.com

Alan McCraeTel: +44 020 7213 4004Email: alan.h.mccrae@uk.pwc.com

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