John S. Herold, Inc. Reports 2008 Europe Oil & Gas Upstream M&A Transaction Value Falls After Active 2007
Credit Crunch, Declining Share Prices Impacts Smaller E&Ps
NORWALK, CT (April 15, 2008) -- Upstream oil and gas merger and acquisition (M&A) total transaction value in Europe fell to just $171 million in the first quarter of 2008 after more than doubling to $5.5 billion in 2007, according to John S. Herold, Inc., an IHS company. Total worldwide transaction value in the first quarter of 2008 was $17.2 billion, down 45 percent from the fourth quarter of 2007 and 37 per cent from the first quarter of 2007.
Total worldwide upstream transaction value in 2007 was $154 billion, according to the 2008 Global Upstream M&A Review, the most comprehensive source of data and analysis in the sector, which is published by John S. Herold in collaboration with Harrison Lovegrove & Co., a Standard Chartered group company.
“Acquisitions for cash or stock by smaller E&P companies virtually came to a halt in the first quarter of 2008,” said Robert Gillon, Herold senior vice president and co-director of equity research. “In 2007, smaller E&Ps were net buyers as worldwide acquisition spending exceeded divestiture proceeds by $5.4 billion. In the first quarter of 2008, total transaction value involving smaller E&Ps was less than $100 million.”
Drawing on themes from his presentation on Upstream M&A Investment Strategy at the IHS London Symposium on April 15, 2008, Gillon explained: “Access to capital is one reason why these companies, many of which are listed on London’s AIM (DEFINE), have been unable to continue to acquire assets. Another is the declining share prices. Herold has reported that the total shareholder return for smaller E&Ps outside North America fell 11.3 percent in the first quarter of 2008.”
Gillon added: “Large E&Ps, which have much stronger balance sheets, have demonstrated the opposite pattern. They were net sellers in the amount of $3.2 billion in 2007, but were net buyers with a balance of $1.6 billion in the first quarter of 2008.”
However, Herold research shows that lack of funds has not stopped smaller E&Ps from making deals to expand or develop their portfolios. The number of farm-in, asset swaps and joint ventures reached nearly 100 in Europe in 2007 and that pace has continued in 2008.
Looking ahead, Herold sees that corporate consolidation, after falling off in 2007, may potentially rise in all global regions, especially if oil prices weaken. Companies that find it hard to secure the appropriate level of financing may be targets of increasingly aggressive National Oil companies and sovereign wealth funds as well as larger E&Ps and the major integrated oils. National Oil Companies and sovereign wealth funds accounted for 30 percent of global M&A transaction value in 2007.
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About John S. Herold
Founded in 1948, John S. Herold, an IHS company (NYSE: IHS), is a specialized research and consulting firm focusing on valuation, strategy, and performance measurement of the world’s leading oil and gas companies. Herold closely monitors the world’s energy capital markets and the dynamic merger, acquisition, and divestiture market for energy assets. IHS is a leading global source of critical information and insight for customers in a broad range of industries. Its customer product and service solutions span four major areas of information: energy, product lifecycle management, environment and security.