1 Opportunities In Natural Resources IFLR Asia M&A Forum 2014 Andrew Abernethy – Akin Gump Stephen D Davis – Akin Gump Garth Briffa – Santos Ltd Adi Karev – Deloitte Touche Tohmatsu Anthony Carango – Nomura 105995529 1. Review of M&A activity 2012/13: What are the trends? 2. Challenges and Opportunities in Resource Deals? 3. Unconventional Oil & Gas: A Regional or Global Resource? 4. LNG: Where is it going? 5. National Oil Companies & Private Equity Funds: What are they buying now? 1 Outline 105995529
Transcript
1
Opportunities In Natural Resources
IFLR Asia M&A Forum 2014
Andrew Abernethy – Akin Gump
Stephen D Davis – Akin Gump
Garth Briffa – Santos Ltd
Adi Karev – Deloitte Touche Tohmatsu
Anthony Carango – Nomura
105995529
1. Review of M&A activity 2012/13: What are the trends?
2. Challenges and Opportunities in Resource Deals?
3. Unconventional Oil & Gas: A Regional or Global Resource?
4. LNG: Where is it going?
5. National Oil Companies & Private Equity Funds: What are they buying now?
1
Outline
105995529
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2
1. Review of M&A activity 2012/13: What are the trends?
105995529
Key upstream M&A trends in 2013
Global oil & gas M&A: Review of 2013
Global upstream M&A in 2013 totaled US$128bn, down 47% year-on-year. Although gross spend was lower, driven by a
fall in corporate M&A, the upstream asset market performed well with spend and deal flow close to record highs
Independent Oil Companies (“IOCs”) were net sellers of upstream assets in 2013, driven by increasing focus on shareholder returns
Near-term asset development projects taking precedent over M&A
Acquisitions are a low priority for IOCs in the current market due to several factors:
– Major near-term capital commitments; tight cash flow; stretched balance sheets; returns under pressure; heightened investor
scrutiny
Asian National Oil Companies (“NOCs”) accounted for 25% of global upstream M&A in 2013
Chinese led for the 5th consecutive year (c.US$20bn of transactions)
Large scale outbound M&A to continue in 2014 as Asian NOCs have the financial capacity to continue to pursue aggressive
acquisitive growth
The prolific growth expected in global LNG demand (led by Asia) continued to be an important driver of upstream M&A transactions in
2013
Investors have shifted focus towards East African and North American projects in recent years, leaving Australian LNG M&A at its
lowest levels since 2007 (saw only two transactions in 2013 for a disclosed consideration of less than US$0.4bn)
East Africa was the hotspot for LNG spend in 2013, with US$10.0bn of transactions
– Asia drove activity as CNPC, ONGC and Oil India spent US$9.3bn in Mozambique
Unconventional deal spend slowed significantly due to low levels of activity in unconventional gas driven by weak pricing dynamics
– Tight oil was the key focus of unconventional M&A in 2013
M&A activity will remain subdued in 2014 as the fight for large entry positions in Northern American tight oil plays is expected to be
largely over. Deals will be driven by smaller firms looking for break-out growth, and from play specialists looking to consolidate in core
areas. Weak gas prices will suppress shale gas M&A
IOC portfolio
realignment 1
Asian NOCs as
core buyers 2
Globalization
of LNG M&A 3
Subdued deal
activity in
unconventional
4
1
3
2013 global upstream M&A spend by primary deal location and buyer type
Global upstream deal activity in 2013
Source: Wood Mackenzie.
North America continues to be the largest upstream M&A market globally, however deal spend fell considerably in
2013 due to muted M&A activity in shale gas
0
20
40
60
80
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(US$bn
)
Shale Gas Tight Oil Other
Mid cap Large Cap Major NOC Other
Russia & Caspian
US$30.5bn
North America
US$55.3bn Europe
US$4.5bn
Latin America
US$9.4bn
Africa
US$20.5bn
Asia Pacific
US$7.6bn
North American unconventional M&A spend
2
Top 15 buyers and sellers in 2013
IOC portfolio realignment drove significant
divestment activity by Western based companies
IOC aggregate M&A spend of US$17bn in 2013 was less than any prior year on record1, causing the group to rank as
net sellers for the second consecutive year driven by US$43bn of aggregate disposals
(15)
(10)
(5)
0
5
10
15
Net M&A spend (US$bn)
■ Western headquartered company
Note: 1) Based on Wood Mackenzie analysis.
Source: Wood Mackenzie.
Developed market companies led 11 of the 15 largest
disposals in 2013, highlighting a focus on value over
volume
3
4
NOC overseas M&A by buyer country
Chinese NOCs remained the biggest M&A
participants
Source: Wood Mackenzie.
Asian NOCs remained the core buyers of large assets in the global market, accounting for 25% of global upstream
M&A in 2013. Chinese NOCs led the pack for the fifth consecutive year with c.US$20bn of transactions
0%
5%
10%
15%
20%
25%
0
10
20
30
40
50
2005 2006 2007 2008 2009 2010 2011 2012 2013
China Other Asia Middle East Latin America FSU Africa Other NOC Global M&A (%)
M&A spend (US$bn) (%)
4
Financial buyer deal activity in 2013
Financial buyers invested c.US$22bn1 in O&G deals during 2013 – down c.45% from 2012, which was a record year for
private investment in the sector. Deal activity was predominantly focused on US upstream opportunities
Regional deal spend in 2013 – North America led the way
Upstream dominates M&A spend by financial buyers
42%
24%
11%
13%
7% 3% 0%
North America Europe APAC
Globally diversified MENA Latin America
Russia/Caspian
M&A spend by region North America M&A spend breakdown
83%
15% 2%
USA Diversified Canada
69%
26%
5% 0%
Upstream Midstream OFS Downstream
M&A spend by sub-sector Upstream M&A spend breakdown
Note: 1) Includes deals with disclosed transaction values by private equity firms and sovereign wealth funds.
Source: IHS Herold.
2013
US$22bn
5
5
-
2
4
6
8
10
12
-
500
1,000
1,500
2,000
2,500
2005 2006 2007 2008 2009 2010 2011 2012 2013
Trading house Operator Utility Deal count
% of global LNG M&A spend
Japanese trading companies actively invested in
energy value chain
Source: IHS Herold. Company disclosure.
1. Global M&A transactions include upstream, midstream, downstream and OFS sector. Also includes deal type of acquisitions, swaps, mergers, and joint ventures with disclosed value.
Trading companies have been increasingly acquisitive in oil and gas since 2009, however constitute a small portion of
global oil and gas M&A
Global M&A transactions by trading companies1 Top 15 recent transactions by trading companies
Japan overseas LNG acquisition spend by buyer type
Date
Announce
d
Acquirer Name Target Name Deal Value
(USD mn)
Energy
transaction
2012/05/29 Marubeni Corp Gavilon Group LLC 5,600
2011/11/09 Mitsubishi Corp Anglo American Sur SA 5,390
2012/03/30 Investor Group (Marubeni) Roy Hill Holdings Pty Ltd 3,309
2012/05/01 Japan Australia LNG
(Mitsui & Mitsubishi)
Woodside Browse Ltd-
Browse LNG 2,000
2011/03/03 Investor Group (Sojitz) CBMM 1,950
2010/06/30 Sumitomo Corp Mineracao Usiminas SA 1,930
2011/11/23 Investor Group (Itochu) Samson Investment Co 1,800
Chart generated by U.S. Dept. of Energy at http://energy.gov/sites/prod/files/2014/02/f8/Summary%20of%20LNG%20Export%20Applications.pdf
Applications Received by DOE/FE to Export Domestically Produced LNG
from the Lower 48 States (as of February 20, 2014)
*Lake Charles Exports, LLC (LCE) and Trunkline LNG Export, LLC (TLNG), the owner of the Lake Charles Terminal, have both filed an application to export up to 2.0 Bcf/d of LNG from the
Lake Charles Terminal. The total quantity of combined exports requested between LCE and TLNG does not exceed 2.0 Bcf/d (i.e., both requests are not additive and only 2 Bc/f d is included
in the bottom-line total of applications received.)
** Main Pass Energy Hub, LLC (MPEH) and Freeport McMoRan Energy LLC (FME), have both filed an application to export up to 3.22 Bcf/d of LNG from the Main Pass Energy Hub. (The
existing Main Pass Energy Hub structures are owned by FME). The total quantity of combined FTA exports requested between MPEH and FME does not exceed 3.22 Bcf/d (i.e., both requests
are not additive and only 3.22 Bcf/d is included in the bottom-line total of FTA applications received). FME’s application includes exports of 3.22 Bcf/d to non-FTA countries and is included in
the bottom line total of non-FTA applications received, while MPEH has not submitted an application to export LNG to non-FTA countries.
Applications Received by Canada National Energy Board to Export
Domestically Produced LNG (as of February 20, 2014)
Company Application
Status
Term
Length
License Issued Total Volume* (Tcf) *Refers to volume amount
over the length of license
Daily Volume
(Bcf)
KM LNG Operating
General Partnership
Approved 20 years Yes 9.4 1.3
BC LNG Export
Cooperative LLC
Approved 20 years Yes 1.7 0.2
LNG Canada
Development Inc.
Approved 25 years Yes 32.9 3.2
Pacific NorthWest
LNG Ltd.
Approved 25 years No 24.5 2.7
WCC LNG Ltd. Approved 25 years No 38.9 3.9
Prince Rupert
LNG Exports
Limited
Approved 25 years No 29.6 2.9
Woodfibre LNG Export
Pte. Ltd.
Approved 25 years No 2.6 0.3
Jordan Cove LNG L.P. Under review 25 years N/A N/A N/A
Triton LNG Limited
Partnership
Under review 25 years N/A N/A N/A
Pieridae Energy Ltd. Under review 20 years N/A N/A N/A
Aurora Liquefied Natural
Gas Ltd.
Under review 25 years N/A N/A N/A
Kitsault Energy Ltd. Under review 25 years N/A N/A N/A
Oregon LNG Marketing
Company LLC
Under review 25 years N/A N/A N/A
Information from Canada National Energy Board and Natural Gas Intel at http://www.naturalgasintel.com/articles/96789-four-new-lng-export-approvals-brings-canadian-total-to-145-bcfd 24
Finished Petroleum Products Exported from the United States
Source: http://energy.gov/articles/us-domestic-oil-production-exceeds-imports-first-time-18-years Stephen D. Davis, Partner [email protected], +1 713.220.5888
• Non-traditional players include utility companies, banks and trading companies
• Asian utility companies are taking equity stakes in E&P
• Mitsubishi Corporation has majority stake in Indonesia's Donggi-Senoro liquefied
natural gas (LNG) project
• Chinese power generator China Huadian seeks to invest in Canadian LNG project
after it won exploitation rights for five shale gas regions in China
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