Global upstream review - 2014

Transaction activity declined sharply in 2013

• Record M&A in 2010-12, companies switched focus to developing acquired acreage
• Corporate activity weak – NOCs faced hurdles in NAM, public companies weary of overreaching with strict capital discipline and own paper cheap
• In NAM, prime acreage now leased up; valuations mixed as drilling results and understanding of plays have progressed
• Asian NOCs bidding aggressively on global assets as large corporate opportunities limited or more difficult to transact – have seen spending from this group of buyers up

M&A buyer/seller landscape evolving

• Asian NOCs remain largest buyer group
• Chinese NOCs competing with Asian NOCs who are heavily reliant on import and with mandated overseas growth targets
• Pertamina, PTTEP, CPC and Indian NOCs have focus on Africa
• KNOC has, in contrast, spend USD20bn in past 3 years with poor returns and underperformance
• High debt, looking to downsize portfolio

NAM E&Ps largest sellers of overseas assets

• Retrench to NAM, divest wider international portfolio to focus on core regions, capital discipline
• Financial investors/PE increasing O&G footprint outside of NAM

 
LNG market shifted to emerging basins

• Australia market crowded with competing projects and escalating costs
• East Africa attracting huge Asian NOC investment
• East Med gas in early stages, welcoming experienced LNG players
• Arbitrage opportunity for NAM LNG to APAC/Europe, competing with Middle Eastern basins

 
US conventionals spending falls with shift to liquid plays

• Top performing liquids rich plays have grown market share (Eagle Ford, Bakken); Gas plays (Marcellus) have lost market share
•  PE seeks bargains in nat gas; more efficient tax structures; can wait for gas price to recover

Key themes for 2014

• Majors continue to rationalise portfolios amid shareholder pressure for better returns and weak growth/high capex
• E&Ps - pressure for discipline rather than grow (inorganically); reluctance for large corporate deals unless compelling 
• NAM E&Ps expensive, trades with oil despite gas weighting
• Emergence of Asian private buyers - financial, industrial, OFS and private money looking to diversify into E&P (e.g. Brightoil)