Shale Plays Fuel Energy M&A

Merger and acquisition activity in the U.S. energy sector was largely fueled last year by continued interest in shale plays, according to a new report from PricewaterhouseCoopers.

PwC said deal-making accelerated throughout 2013 and signaled a strong uptick in the final three months of the year. A total of 182 deals valued at a combined $115.9 billion were announced during the full year.

More M&A moves are likely on the way in 2014 as companies look for inorganic opportunities to increase shareholder value and sustain growth, PwC noted in its quarterly Oil & Gas M&A analysis released on Tuesday.

“Overall, M&A activity has been robust for a number of years in oil and gas,” said Doug Meier, PwC’s U.S. energy sector deals leader.  “We see that (trend) continuing as companies in the space focus on portfolio optimization – further investing in those assets that are generating strong returns and divesting those assets that are generating lower returns.”

Meier added that PwC is working with clients to explore transactions and drive synergies.

M&A in the energy industry closed out the year on a high note. There were 51 oil and gas deals with values greater than $50 million in the fourth quarter, while the combined value of those deals jumped 154% versus the third period to $41.7 billion.

According to PwC, 27 deals in the final quarter of 2013 were related to shale plays. Shale deals had a combined value of $23.8 billion, up 338% sequentially. There were 79 shale deals that contributed $53.2 billion in value for all of last year, marking an additional two deals and $1.5 billion in value versus 2012.

Shale M&A bucked a downward trend across the board in 2013. A year earlier, the energy sector saw 212 deals worth $152.8 billion.

Deals at the Marcellus Shale, a hotbed for natural gas production, helped set the pace in the fourth quarter.

“That basin bounced back in the quarter, as stronger performance per well has reinvigorated returns, driving additional interest in acreage in the Northeast,” said John Brady, a Houston-based partner with PwC’s energy practice.

The Eagle Ford formation in Texas, which had five deals valued at $6.5 billion, was the biggest contributor during the latest period. The Marcellus Shale had four deals representing $1.1 billion, while the Niobrara Shale, located in Colorado, Wyoming and neighboring states, added two deals worth $1.2 billion. The Utica Shale contributed two smaller deals valued at $263 million.

“If shale plays continue to adapt more efficient production processes to optimize the play and improve returns, activity in 'unconventionals' will continue to be robust,” Brady added.

Total fourth-quarter deal volume and value fell by 36% and 29%, respectively, compared to the year-ago period. PwC said that decline can be attributed to pending changes in U.S. tax law that drove M&A activity in the final stretch of 2012.

PwC also noted that foreign investors played less of a role in energy M&A. Foreign buyers announced four deals in the fourth quarter worth $541 million, well below the 10 deals at $3.4 billion during the same period in 2012.