Mega deals in the oil and gas sector are still very much on the agenda, according to PwC’s latest global deal trends report out yesterday.
But one of its bosses in Aberdeen has also expressed concern about the potential impact of the UK Government’s £10billion tax grab on producers announced in last month’s Budget.
PwC said the first quarter of this year witnessed the lowest level of worldwide deal activity in the oil and gas sector since early 2009. There were 163 deals in the period, down 20% on levels in 2010.
However, in value terms, £57billion of transactions were also completed which was in line with the year before.
Upstream deals continue to account for most of all oil and gas transactions, securing 67% of all deals so far this year worth £38billion.
Of these, the larger upstream contracts focused on long-term goals in strategic regions and included major gas asset deals such as BP’s deal with Reliance in India and PetroChina’s joint venture with EnCana in Canada.
According to the report, the oil field service sector also saw a continuation of the big ticket deals, characteristic of the mergers and acquisitions market in recent years.
Valuation levels are also said to be increasing in the service sectors, with multiples returning to pre-recession levels.
Alan Barr, director and oil and gas specialist at PwC’s Aberdeen office, said: “Deal volumes in the first quarter of 2011 dropped off slightly from the levels recorded in 2010, but the outlook is encouraging because continuing improved sentiment within the sector has still driven strong deal activity.
“As expected, below the top-tier deals, the mid-market remains sluggish largely down to the fact that private equity hasn’t made any meaningful return to the sector with most of the recent deals down to corporates with healthy balance sheets. The good news is that we would expect this to pick up later in the year.”
Mr Barr said the impact of recent UK tax increase in the North Sea had yet to fully play out.
He added: “Given the commercial landscape for many operators in this region remains challenging, we fear that the impact of this and previous tax increases may reduce longer- term investment in the region.
“This will only increase the move to new territories.”
The top five global oil and gas deals in the first quarter involved:
1 Berkshire Hathaway and Lubrizol £5.3billion; 2 Ensco and Pride International £5.2billion; 3 BP and Reliance Industries £4.3billion; 4 PetroChina and EnCana £3.2billion; 5 International Petroleum Investment and Total £2.9billion.