More players join shale party

02 09, 2012 by Fuel Fix

Pipelines and foreign corporations spurred a surge in the value of mergers and acquisitions in the oil and gas industry in 2011, marking a new phase in the burgeoning U.S. shale boom, according to a report released Wednesday.

Oil and gas companies spent $259 billion buying up other businesses during the year, a 14 percent jump over 2010, research firm Deloitte reported.

Though deals largely have been driven by grabs at land for producing oil and natural gas, 2011 saw growing interest in transporting the fuels to markets, said Roger Ihne, principal energy portfolio leader for Deloitte.

Two of the top three deals for 2011 were in pipelines and fuel storage, Ihne noted.

“That’s something we would have never expected and certainly had never seen before,” Ihne said. “Clearly, the amount that’s going to have to be spent on infrastructure, what we’ve seen is only a drop in the bucket in terms of what it’s ultimately going to be.”

Domestic production of oil and natural gas has boomed in recent years as technology has allowed companies to reach harder-to-access reservoirs. But the growth in volume produced has led to a critical need for pipelines and storage facilities.

In 2010, the money spent on buying companies that transport and store fossil fuels made up 4 percent of the total value of oil and gas deals. Last year, such deals made up 32 percent of the total value.

The biggest was Kinder Morgan’s $21 billion deal in October acquiring El Paso Corp., creating a natural gas-transport behemoth with 80,000 miles of pipeline.

In another natural gas pipeline deal, Energy Transfer Equity announced a plan in June to buy Southern Union Co. for more than $4 billion.

Mergers and acquisitions targeting companies that provide oil field equipment and services totaled $33.2 billion, or 13 percent of all oil and gas deals in 2011, and $10.1 billion, or 4 percent, was spent on acquiring refining and retail assets.

Acquisitions focused on getting acreage for exploration and production made up about half of the total value of oil and gas deals in 2011.

Interest from abroad

A growing portion of those deals involved foreign companies partnering with U.S. firms to gain shale drilling expertise that they can take overseas, Deloitte principal Trevear Thomas said.

The trend looks like it will continue in 2012, with France’s Total and China’s Sinopec announcing in January investments of more than $2 billion each in U.S. shale fields.

Thomas said 2012 could bring more acquisitions as large corporations buy up smaller ones struggling with low U.S. prices for their natural gas.

Opportunities to buy

“Given this low gas price environment that we are in, some of the independent producers that are not as well capitalized could be opportunities for others that are more capitalized to take them on,” Thomas said.

Natural gas closed down 2.4 cents to $2.45 per million British thermal units Wednesday on the New York Mercantile Exchange.