PLS Inc. ("PLS") in conjunction with its international partner, Derrick Petroleum Services ("Derrick"), reports that global M&A activity for the First Quarter 2012 slowed to $35.3 billion in 171 separate transactions. This compares to $47.6 billion in 208 deals in Q4 2011 and $42.3 billion in 199 deals in Q1 2011. According to Ronyld Wise, President of PLS Inc., "The number of deals slowed this quarter reversing a recent five-quarter trend of about 200 deals per quarter. We attribute the slowdown in deal activity primarily to continued weakness in North American natural gas prices that continue to test 10-year lows. That said, both PLS and Derrick think the record high oil to gas price ratio of over 50 to 1 makes for an extraordinary deal making environment in the coming months. On the gas side, well-capitalized contrarian buyers like private equity, overseas interests and MLPs are searching for high-quality gas assets in anticipation of a rebound in North Americagas prices. On the oil side, we expect oil-leveraged resource players with strong cash flows continue to consolidate core areas and expand opportunities."
Global -- 1st Quarter 2012 E&P Mergers and Acquisitions
Globally, North America led the world in oil and gas transactions (see Table 1) with total deal volume of $27.8 billion or ~80% of transactions by dollar volume. This is up from the prior-three-quarter average of 64%. The United States accounted for 69 deals or 40% of deal count and 51% of deal value. Canada was a standout this quarter where Canadian natural gas developments with export potential are especially attractive to Asian buyers. In this quarter, Canada accounted for 57 deals or 33% of deal count and 27% of deal value. Canada's 27% share of global deal value is up from a prior-three-quarter average of about 10% to 12%. Canada's largest deal this quarter, Mitsubishi's $2.9 billion joint venture with Encana in northeast British Columbia, is an example of the interest of Asian buyers.
According to Yashodeep Deodhar, Managing Partner of Derrick Petroleum Services, "Outside of North America, the highlight of the quarter is the acquisition of London-based Cove Energy with strong assets in the exciting East Africa region including offshore Mozambique and Kenya. The board of Cove just accepted an upward revised cash offer of $1.8 billion from Shell which matched Thailand's NOC PTT Exploration and Production's existing offer. The accepted offer represents a 96% premium to the share price just prior to Cove's early January announcement to initiate a sales process. The transaction is indicative of East Africa's offshore basin emergence as a world class area on the global exploration map."
Regionally, in terms of deal value this quarter, North America ($27.8 billion) was followed by Africa ($2.2 billion), Asia ($1.6 billion), Europe ($1.4 billion) and South America ($1.0 billion). By commodity type, oil accounted for $9.4 billion of transaction value, or 27% of deal value during the quarter, while natural gas-oriented transactions remained steady at $14.2 billion or 40% of deal value. Deals that involved a mixed-commodity base generated $10.2 billion (29%) in deal value while transactions related to oil sands were $1.3 billion (4%) during the quarter.
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