By Sebastine Obasi

Despite a late-year plunge in crude oil prices, robust merger and acquisition activity (M&A) in the first 10 months of the year fueled an increase in the total transaction value.

Global upstream oil and gas M&A deals in 2014, rose 23 percent to $173 billion, said Colorado, United States-based IHS, a leading source of information, insight and analytics in critical areas that shape today’s business landscape.

The report said that the rebound in 2014 transaction value is particularly noteworthy for the industry after transaction value for global upstream oil and gas M&A deals fell by almost half during 2013 to $140 billion, the lowest level since the 2008 recession. In 2013, rather than shopping for deals, oil and gas companies shifted their focus to developing their vast inventories of previously acquired reserves, resources and acreage.

”The uncertainty caused by the severe decline in oil prices during the final two months of 2014 nearly brought deal activity to a standstill,” said Christopher Sheehan, director of energy M&A research at IHS. According to him, “Buyers and sellers are having difficulty reaching a consensus because of the oil price tumble, which is causing significant uncertainty for the industry. However, transformative acquisition opportunities typically arise at the bottom of the crude price cycle, so Repsol’s late-year agreement to acquire Talisman Energy may be the tip of the iceberg for corporate consolidation if crude prices remain depressed throughout 2015. The deal may foreshadow further consolidation in the oil and gas industry.”

Another significant change in 2014 upstream M&A activity was a plunge in acquisitions by Asian and Caspian regional national oil companies, NOCs. Asian and Caspian regional NOCs were buyers in half of the 10 largest deals in 2013, but none of these companies were buyers in the 10 largest deals in 2014. Seven of the 10 largest worldwide deals involved North American-based exploration and production companies as either buyer or seller in transactions that each exceeded $2 billion.

The report also stated that the value of overseas acquisitions by Chinese NOCs fell steeply in 2014 to less than $3 billion from $20 billion in 2013. However, private Chinese financial and industrial conglomerates emerged as more active buyers in the global M&A market. And the Chinese NOCs reached large, forward-sale oil and gas supply agreements worth tens of billions of dollars with Russia, highlighting the strengthening of ties between Asian NOCs and Russia as sanctions reduce western investment.

Western integrated oil companies, such as Royal Dutch Shell, which divested approximately $15 billion in worldwide upstream assets in 2014, were among the most active global market sellers during the year. Meanwhile, Middle Eastern NOCs increased their overseas acquisition spending.

The report did not include Oando Energy Resources acquisition of the Nigerian upstream oil and gas business of United States-based ConocoPhillips for a total cash consideration of $1.5 billion after customary adjustments plus a deferred consideration of $33 million.

According to IHS energy M&A research, worldwide deal count (which includes both asset deals and corporate deals) rose 4 percent in 2014, but remained well below the 10-year high in 2012. The number of worldwide asset transactions climbed by 4 percent in 2014, reversing the almost 10 percent decline in the prior year, noted IHS.

The corporate deal count rose only marginally from the 10-year low in 2013. Large-scale corporate consolidation was relatively absent for the second consecutive year, with only three corporate transactions above $5 billion in 2014, including Repsol’s $15.5 billion takeover agreement for Talisman. The report explained that global spending on unconventional assets in 2014 increased substantially to more than $70 billion, after plunging by nearly 50 percent in 2013 to approximately $45 billion. However, this total was almost 20 percent below the peak of $85 billion in 2012.

It stated that the United States represented nearly 50 percent of global upstream oil and gas transaction value in 2014. According to the report, four of the top-five largest U.S. deals targeted unconventional resources, led by Encana’s $7.8 billion acquisition of Midland Basin private producer, Athlon Energy. Total U.S. transaction value rose strongly from the five-year low in 2013, with corporate deal value nearly quadrupling from a 10-year low, while asset deal value increased by one-third.