Originally published on blog.evaluateenergy.com by Mark Young.
Following a lackluster first quarter for mergers and acquisitions (M&A) activity in the oil and gas upstream sector, the second quarter of 2014 saw a spectacular rebound according to analysis from Evaluate Energy. The total upstream deal value of US$51.3 billion is the highest single quarter total since 2012.

The majority of the increase in global upstream deal activity is attributable to companies and assets based in North America, where the total value of upstream deals announced increased for the fourth quarter in a row. Deals to acquire North American upstream assets or businesses made up 47% of the total deal value (US$24.3 billion) in the second quarter of 2014.

Source: Evaluate Energy M&A Database
Source: Evaluate Energy M&A Database

American Energy Partners LP Continues with Utica Acquisitions

Acquisitions by North American companies also made up 47% of the quarterly total upstream deal value. Amongst the biggest-spending North American companies this quarter was the Aubrey K. McClendon-led American Energy Partners LP (AELP), which made large acquisitions in the prolific Permian Basin (US$2.5 billion) and the Marcellus and Utica shale plays (US$1.75 billion) in early June. McClendon was an early champion of the Utica Shale in his Chesapeake Energy days, and the acquisition continues to show that his faith in the play's potential has not wavered; this US$1.75 billion deal was AELP’s fourth acquisition this year to include a position in the Utica Shale.
Apache, Devon, Encana & Freeport-McMoRan Streamline North American Positions
On the whole, AELP’s activity was a rare case, as most other acquisitions in the quarter of this size were accompanied by a similarly-sized sale of assets elsewhere; it seems many North American companies are focused on streamlining positions rather than making large acreage gains like AELP. The motivation behind this streamlining of strategies will most likely be high North American production costs as well as low gas prices that have caused major rethinks for many companies trying to keep netbacks in line with shareholder expectations.
Apache Corp., Devon Energy, Encana Corp. and Freeport-McMoRan Copper & Gold Inc. (FCX) are four big North American companies who conducted the highest profile restructurings within the region this quarter. Apache continued its US$4 billion divestiture plan to aid debt repayment and share buybacks by completing the US$1.4 billion sale of the Lucius and Heidelberg Gulf of Mexico Shelf prospects to FCX and entities exercising pre-emptive rights over the assets. FCX had originally agreed to acquire the full stakes held by Apache in the assets, but eventually ended up contributing US$919 million of the US$1.4 billion Apache received in consideration. This acquisition by FCX was funded by the biggest single deal of the second quarter, an agreement to sell 45,500 acres and 59 million barrels of proved reserves in the Eagle Ford Shale to Encana for US$3.1 billion. FCX – having increased its focus on the Gulf of Mexico - will use the rest of the proceeds from this sale to redeem $1.7 billion in senior notes. In turn, Encana made a couple of sales of its own to fund this Eagle Ford acquisition. In April, the company agreed to sell some East Texas assets for approximately US$486 million and then in June, Apollo Global Management LLC – a New York-based private-equity investor – acquired the company’s Bighorn Alberta Deep Basin assets in Canada for US$1.8 billion. Devon completed the majority of its own restructuring plan last quarter, completing the biggest deal of 2013, to finalize its entry into the Eagle Ford shale for US$6 billion, as well as announcing the sale of noncore assets in Canada to CNRL for US$2.9 billion. The final piece of the company’s restructuring jigsaw – a US$2.3 billion deal that will see Linn Energy acquire Devon’s noncore onshore assets - was announced on the very last day of the second quarter. Once this final deal is complete, the restructuring process for Devon will be over and it is hard to argue that it has not gone well; the company now has a premier position in one of the U.S.’ most attractive shale plays, lucrative oil and condensates will have risen to form 60% of the company’s oil & gas production by year end and net debt will have been reduced by US$4 billion. Outside of North America, further large restructuring operations took place this quarter and among the highest-profile of these was Hess Corp.’s latest deal on its way to becoming a single-resource play company. Hess agreed to sell its Thai business to state-backed PTTEP for US$1 billion. In Chad, Chevron decided to sell its 25% stake in producing assets and a pipeline to the Central African country’s government for US$1.3 billion. These deals made up the majority of the total state-backed deal value this quarter, as state-backed entities have had a very quiet 2014 with only US$3.2 billion of deals in the second quarter after a first quarter total of US$1.8 billion – in 3Q and 4Q 2013 state-backed companies were involved in nearly US$25 billion of upstream deals combined.
Investment Firms Active in 2Q 2014
Apollo Global Management was not the only investment firm to be active in the upstream M&A arena in the second quarter. Morgan Stanley completed Repsol’s exit from Argentina by acquiring the final 11.86% stake in YPF SA held by the Spanish major for US$1.4 billion including debt, while various investment firms were involved in the combined US$3 billion acquisition of a 9.5% stake in Australia’s Woodside Petroleum from Royal Dutch Shell. This willingness of private investment firms to buy interests in global E&P assets speaks volumes for the confidence held in the sector right now, despite ever-climbing operational costs seeming to hinder the profit-making abilities of upstream companies worldwide.
Top 10 Upstream Deals in 2Q 2014



Target Country

Brief Description

Total Acquisition Cost (US$000s)

Encana Corporation

Freeport-McMoRan Oil & Gas LLC and PXP Producing Company LLC

United States

Encana acquires 45,500 net Eagle Ford acres in heart of the oil-rich portion of the play


Various Investment Firms

A 9.5% stake in Woodside Petroleum from Royal Dutch Shell


Royal Dutch Shell plc disposes 9.5% of its share in Woodside Petroleum Limited to a range of equity market investors


Woodside Petroleum

A 9.5% stake in Woodside Petroleum from Royal Dutch Shell


Woodside Petroleum Limited buys back 9.5% of its own shares from Royal Dutch Shell plc


Det Norske

Marathon Oil Norge AS


Det Norske Oljeselskap ASA acquires Marathon Oil's wholly owned subsidiary, Marathon Oil Norge AS


American Energy Partners, LP

Enduring Resources, LLC

United States

American Energy Partners, LP, through its subsidiary American Energy – Permian Basin, LLC, acquires approximately 63,000 net acres from Enduring Resources, LLC


Linn Energy

Devon Energy Corporation

United States

Linn Energy acquires Devon's non-core US oil and gas properties in the Rockies, onshore Gulf Coast and Mid-Continent regions


Al Mirqab Capital SPC

Heritage Oil Plc


Energy Investments Global Ltd, a wholly-owned subsidiary of Al Mirqab Capital SPC makes a cash offer to acquire Heritage Oil Plc


Apollo Global Management, LLC

EnCana Corporation


Jupiter Resources, held by Apollo Global Management, acquires Encana's Bighorn assets in the Alberta Deep Basin


American Energy Partners, LP

East Resources, Inc. and an unnamed private company

United States

American Energy Partners, LP (through subsidiaries) acquires approximately 75,000 net acres in the Marcellus and Utica shale plays from East Resources, Inc. and an unnamed private company


Glencore Xstrata plc

Caracal Energy Inc.


Glencore Xstrata plc acquires Caracal Energy Inc.


This report was created using the Evaluate Energy M&A database. The database includes every upstream and downstream acquisition since 2008. Evaluate Energy provides clients with efficient data solutions for oil and gas company analysis. Alongside our M&A product, Evaluate Energy also has historical financial and operating data for 300+ of the world’s biggest and most important oil and gas companies, a global assets database and a North American shale-focused product. Request a Demo of Evaluate Energy’s Database here.