Private equity ('PE') interest in the U.S. oil and gas industry marked at least a 20-year high during the first quarter of 2012, as the volume of mergers and acquisitions (M&A) reached 11 transactions, which had a total deal value of $11.5 billion, a 120 percent increase in activity when compared to the same period in 2011, according to PwC US.

For the three month period ending March 31, 2012, there were a total of 44 oil and gas deals with values greater than $50 million, accounting for $34 billion in deal value, which was essentially unchanged from the 45 deals representing $34.6 billion during the same period last year. However, there was a small uptick in first quarter average deal size in 2012 to $773 million from $768 million during the first quarter of 2011, driven by nine 'mega' deals (deals with values of $1 billion or more).

On a sequential basis, deal volume in the first quarter of 2012 dipped from the 48 deals in the fourth quarter of 2011, with total deal value in the first quarter this year seeing a significant decline from the $80.5 billion from the previous quarter - a 58% decline quarter-to-quarter. The decline in deal value, according to PwC, can largely be attributed to depressed natural gas prices.

Although deal activity has remained consistent year-over-year, we are beginning to see a softening of deal flow when compared to the past few quarters, said Rick Roberge, principal in PwC's energy M&A practice. This past quarter, however, was a watershed moment for private equity activity and we're seeing an increased appetite from these investors to deploy their dry powder in oil and gas transactions. The 10-year low natural gas prices have attracted PE as they see opportunity getting in at the bottom and are taking a long-term view of natural gas pricing. Corporates, meanwhile, view natural gas plays at these prices as a challenge to the industry. And while a majority of PE activity has been in the upstream sector, we may see a trend toward growing investments in the downstream space with an eye towards refineries, an area which has had very limited activity.

There were 18 corporate transactions with values greater than $50 million, with a total deal value of $15.8 billion. Twenty-six asset deals contributed $18.2 billion, or 53 percent of total first quarter deal value. When compared with the first quarter of 2011, there were seven more corporate transactions in the first quarter of this year, although total deal value dropped from the $17.5 billion that was generated during the first three months of 2011. The number of asset transactions declined from 34 deals in the first quarter of 2011, but average deal value jumped 40 percent in the first quarter of 2012 to $700 million.

For deals valued at over $50 million, upstream deals made up 61 percent of activity in the first quarter of 2012 with 27 transactions, accounting for $20.1 billion, or 59 percent of total first quarter deal value. Oilfield services contributed seven deals worth $2.5 billion. Six midstream and four downstream deals contributed $7.0 billion and $4.3 billion in value, respectively.

According to PwC, there were 13 deals with value greater than $50 million related to shale plays in the first quarter of 2012, totaling $8.4 billion, or 28 percent of total deal value. In the upstream sector, shale deals represented 33 percent of total upstream deal value in the first quarter of 2012, accounting for nine deals with a total value of $5.3 billion.

Included in all the shale-related deals in the first quarter of 2012 were two transactions involving the Marcellus Shale totaling $2.9 billion and one Utica Shale deal that contributed $112 million.

Natural gas prices are having an impact on shale M&A, with total deal value down about 22 percent when compared to the first quarter of 2011, said Steve Haffner, a Pittsburgh-based partner with PwC's energy practice. Companies with interests in the Marcellus Shale are focused on maximizing their returns on earlier transactions and managing their existing operations and cash flow in light of the depressed gas prices. We expect M&A activity to slow in the region throughout the remainder of the year as players wait for improved natural gas prices. That 'wait and see' approach is also impacting activity in other shale plays like the Utica Shale.

For deals valued at over $50 million, foreign buyers announced five deals in the first quarter of 2012, which contributed $4.3 billion, versus six deals valued at $8.0 billion in the same period last year.

International players are still investing in a major way through joint ventures in U.S. shale plays as they're attracted to the country's stable economic and political environment and gaining the technology in shale resource plays. We believe that interest from foreign buyers will remain throughout 2012, added Roberge. Another development that we believe will continue to get increased attention is the increase in permits for drilling in the Gulf of Mexico over the past year. Companies looking to gain exposure to conventional sources of energy are looking more closely at the Gulf for opportunities - and although M&A activity has been slow to come back in the region, the fact that permits are on the rise is evidence that the Gulf is back in business.

PwC's Oil & Gas M&A analysis is a quarterly report of announced U.S. transactions with value greater than $50 million analyzed by PwC using transaction data from IHS Herold.

For the three month period ending March 31, 2012, there were a total of 44 oil and gas deals with values greater than $50 million, accounting for $34 billion in deal value, which was essentially unchanged from the 45 deals representing $34.6 billion during the same period last year. However, there was a small uptick in first quarter average deal size in 2012 to $773 million from $768 million during the first quarter of 2011, driven by nine 'mega' deals (deals with values of $1 billion or more).

On a sequential basis, deal volume in the first quarter of 2012 dipped from the 48 deals in the fourth quarter of 2011, with total deal value in the first quarter this year seeing a significant decline from the $80.5 billion from the previous quarter - a 58% decline quarter-to-quarter. The decline in deal value, according to PwC, can largely be attributed to depressed natural gas prices.

Although deal activity has remained consistent year-over-year, we are beginning to see a softening of deal flow when compared to the past few quarters, said Rick Roberge, principal in PwC's energy M&A practice. This past quarter, however, was a watershed moment for private equity activity and we're seeing an increased appetite from these investors to deploy their dry powder in oil and gas transactions. The 10-year low natural gas prices have attracted PE as they see opportunity getting in at the bottom and are taking a long-term view of natural gas pricing. Corporates, meanwhile, view natural gas plays at these prices as a challenge to the industry. And while a majority of PE activity has been in the upstream sector, we may see a trend toward growing investments in the downstream space with an eye towards refineries, an area which has had very limited activity.

There were 18 corporate transactions with values greater than $50 million, with a total deal value of $15.8 billion. Twenty-six asset deals contributed $18.2 billion, or 53 percent of total first quarter deal value. When compared with the first quarter of 2011, there were seven more corporate transactions in the first quarter of this year, although total deal value dropped from the $17.5 billion that was generated during the first three months of 2011. The number of asset transactions declined from 34 deals in the first quarter of 2011, but average deal value jumped 40 percent in the first quarter of 2012 to $700 million.

For deals valued at over $50 million, upstream deals made up 61 percent of activity in the first quarter of 2012 with 27 transactions, accounting for $20.1 billion, or 59 percent of total first quarter deal value. Oilfield services contributed seven deals worth $2.5 billion. Six midstream and four downstream deals contributed $7.0 billion and $4.3 billion in value, respectively.

According to PwC, there were 13 deals with value greater than $50 million related to shale plays in the first quarter of 2012, totaling $8.4 billion, or 28 percent of total deal value. In the upstream sector, shale deals represented 33 percent of total upstream deal value in the first quarter of 2012, accounting for nine deals with a total value of $5.3 billion.

Included in all the shale-related deals in the first quarter of 2012 were two transactions involving the Marcellus Shale totaling $2.9 billion and one Utica Shale deal that contributed $112 million.

Natural gas prices are having an impact on shale M&A, with total deal value down about 22 percent when compared to the first quarter of 2011, said Steve Haffner, a Pittsburgh-based partner with PwC's energy practice. Companies with interests in the Marcellus Shale are focused on maximizing their returns on earlier transactions and managing their existing operations and cash flow in light of the depressed gas prices. We expect M&A activity to slow in the region throughout the remainder of the year as players wait for improved natural gas prices. That 'wait and see' approach is also impacting activity in other shale plays like the Utica Shale.

For deals valued at over $50 million, foreign buyers announced five deals in the first quarter of 2012, which contributed $4.3 billion, versus six deals valued at $8.0 billion in the same period last year.

International players are still investing in a major way through joint ventures in U.S. shale plays as they're attracted to the country's stable economic and political environment and gaining the technology in shale resource plays. We believe that interest from foreign buyers will remain throughout 2012, added Roberge. Another development that we believe will continue to get increased attention is the increase in permits for drilling in the Gulf of Mexico over the past year. Companies looking to gain exposure to conventional sources of energy are looking more closely at the Gulf for opportunities - and although M&A activity has been slow to come back in the region, the fact that permits are on the rise is evidence that the Gulf is back in business.

PwC's Oil & Gas M&A analysis is a quarterly report of announced U.S. transactions with value greater than $50 million analyzed by PwC using transaction data from IHS Herold.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service