BNP Paribas Fortis North American energy monthly - Virtual Metals

2 | BNP Paribas Fortis North American energy monthly | October 2009 BNP Paribas Fortis/VM Group
Analysis
Analyst: Paul Hannon
VM Group
Tel: +44 20 7569 5930
Email: paul@vmgroup.co.uk
Analyst: Gary Mead
VM Group
Tel: +44 20 7569 5930
Email: gary@vmgroup.co.uk
M&A back in fashion
The 2008-09 recession and credit crisis effectively crippled merger and
acquisition activity in the US, but as the signs of economic recovery are
gathering force, the M&A bandwagon is on the move again.
Superheroes and oil services are not usually linked but when Walt Disney
announced its generous $4bn cash-and-paper purchase of Marvel Entertainment
on the same day in late August as oilfield group Baker Hughes bought a major
competitor for $5.5bn, it was the starting signal for a new wave of M&A
business.
The takeovers stood out more than usual because August traditionally sees little
M&A activity, as dealmakers normally take a short summer break to run
numbers that eventually translate into headlines later in September and October.
Furthermore, the latest wave of takeovers reveals a shift in emphasis with
companies more intent on actively searching for suitable opportunities that do
not necessarily need to be done rather than picking through the bones of
companies in distress.
Oil and gas deals globally, $bn Oil and gas deals by region, $bn North American deals by sector, $bn
350
140
90
300
250
120
100
80
70
60
80
50
200
60
40
150
40
30
20
100
20
10
50
0
2005 2006 2007 2008
0
North America
Europe
Russia
2007 2008
Rest of world
International
0
Upstream
Midstream
Downstream
2007 2008
Services
Source: PricewaterhouseCoopers, O&G Deals 2008
Annual Review
Source: PricewaterhouseCoopers, O&G Deals 2008
Annual Review
Source: PricewaterhouseCoopers, O&G Deals 2008
Annual Review
Whereas the logic behind the Disney takeover might appeal to franchise-hungry
film producers, the reacquisition of BJ Services was more to do with Baker
Hughes regaining a foothold in pressure pumping and the growing international
demand to enhance oil recovery rates. As a result of the merger, Baker Hughes,
which originally spun off BJ Services in 1990, will see its pressure pumping
activities increase to more than 20% of revenue compared with less than 1%
before the deal. BJ shareholders will now own 27.5% of the combined company.
Even though Baker Hughes was prepared to pay a 16% premium on BJ
Services’ stock price, caution remains a watchword among acquisitive boards
with many smaller deals being done for specific assets rather than buying an
entire company. For example, Exco Resources sold half of its midstream assets
in Texas and Louisiana in early August to BG Group for $249m and then
followed it in late September with sales of Oklahoma assets worth $540m to
Sheridan Holdings and Ohio gas properties valued at $145m to EV Energy
Partners. Dallas-based Chief Oil & Gas sold a 30% stake in its Marcellus Shale
gasfield to Enerplus Resources Fund for $406m in late August and, on the same
day as the Disney/Baker Hughes announcements, Kinder Morgan Energy agreed