International investments by Middle Eastern firms fall to $3.7 billion from $13 billion in 2007
Global M&A upstream transaction value plunged to $104 billion from an annual average of nearly $160 billion in 2005-2007, according to the 2009 Global Upstream M&A Review prepared by IHS Herold Inc., an IHS company (NYSE: IHS), and Harrison Lovegrove & Co., Ltd., a Standard Chartered group company. This review provides a comprehensive analysis of more than 280 significant upstream transactions that were announced in 2008.
Chris Sheehan, Director of M&A Research for IHS Herold Inc., said, “Deal activity was on a record pace through the first half of 2008, as 203 transactions were announced by July 31. Then the market declined precipitously to just 79 in the final five months of the year due to plunging commodity prices and the extreme weakness in equity and credit markets.”
Sheehan added, “High stock prices, driven by soaring commodity prices in the first half of the year, made corporate takeovers very expensive.”
Total corporate transaction value plunged to $34.2 billion in 2008 from $64.2 billion in 2007. Total worldwide asset transaction value fell to $70.1 billion from the record $88.2 billion in 2007, but was still the second highest ever recorded.
The average price paid for a barrel of oil equivalent (boe) of proved reserves purchased in 2008 increased to $11.51 from $10.01 per boe in 2007. Ed Tockman, a director with Harrison Lovegrove & Co., commented, “The increase came primarily in transactions completed before the steep fall in commodity prices in the last five months of the year. Average deal pricing retreated strongly in the fourth quarter.”
National Oil Companies and Sovereign Wealth Funds, including those based in the Middle East, accounted for a record high 15 per cent of global open market transaction value during the year, including six of the ten largest asset deals.
Sheehan said, “Transactions by Middle East firms fell to $3.7 billion in 2008 from a record $13 billion in 2007 as corporate and asset transactions became very expensive. However, Asian national oil companies continued to be active buyers in the Middle East and internationally as spending increased to $13.1 billion from $11.8 billion in 2007.”
Notable transactions in the Middle East included Chinese companies Sinopec purchasing Syria-focused Tanganyika Oil for $1.8 billion and Sinochem acquiring the Yemen assets of Soco International for $465 million. Kuwait Energy acquired assets in Yemen and Egypt from Oil Search for $200 million.
The largest 2008 international purchases by Middle East companies was Abu Dhabi based Mubadala Development acquiring Southeast Asia-focused Pearl Energy from Aabar Petroleum for $833MM. The Abu Dhabi National Energy Co. (TAQA) bought interests in fields in the United Kingdom North Sea from ExxonMobil and Royal Dutch Shell for $631MM. TAQA was the most active buyer in 2007, spending $8 billion primarily in Canada.
The IHS Herold/Harrison Lovegrove study points out that the steep decline in commodity prices and the equity markets should lead to increased M&A activity.
Sheehan said, “Corporate takeover activity should increase through 2009 and into 2010. Looking to 2009 and beyond, the number of assets coming to the market will increase. We expect National Oil Companies and Sovereign Wealth Funds based in the Middle East will be aggressively seeking quality companies and assets.”
