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Asian Oil - 2014 Energy M&A

15/1/2014

Week 2, Issue 408, published by NewsBase

Unsurprisingly, 2013 was a difficult year for mergers and acquisitions. From the government shutdown in the US to China‘s faltering economy and continuing conflict in the Middle East, the climate was, at times, far from reassuring for businesses of all sizes.

According to a report by research firm IHS, the value of global M&A deals across the global oil and gas sector fell by almost 50% in 2013 to US$136 billion from nearly US$250 billion the year before. The overall deal count also dropped 20%, largely owing to a depressed and drawn out first half. Meanwhile, not a single deal came in at over US$10 billion – a far cry from the record set by Rosneft‘s US$60 billion buyout of TNK-BP in 2012.

Yet without the activity of the state-owned majors, particularly those from China, the figures would have been even worse. In total, half of the 10 biggest deals during 2013 involved Asia‘s state-backed firms.

These included China National Petroleum Corp.‘s (CNPC) purchase of an 8.4% stake in the giant Kashagan field in Kazakhstan from KazMunaiGas (KMG) for US$5.4 billion. The Kazakh company had previously bought the share back from US super-giant ConocoPhilips before selling it to CNPC. This was the year‘s second largest deal overall, coming in just behind Devon Energy‘s agreement to buy US shale assets from GeoSouthern Energy for US$6 billion.
CNPC was also responsible for the US$4.2 billion purchase of a stake in Eni‘s interests in a major gas field in Mozambique, while Sinopec acquired a 33% minority participation in Apache‘s Egyptian oil and gas business for US$2.94 billion.

Continental development

While the Sinopec deal was first announced in August 2013, it closed in November 2013, comfortably making it the fourth quarter‘s biggest deal in Asia. The agreement marked Sinopec‘s first step into Egypt, with the company hoping to boost production by up to 130,000 barrels of oil equivalent per day during peak output as a result.
Elsewhere, though, the deals of note took place away from China‘s Big Three, Sinopec, China National Offshore Oil Corp. (CNOOC) and CNPC, which have spent around US$200 billion on foreign acquisitions and joint ventures alone over the past eight years. Intriguingly, though, much more can be read into the state of the industry and its outlook for the coming month from these contracts than continued oversea purchases by the state monoliths.
One such transaction is the little-publicised purchase of Guodian Anhui Power, a producer of cabling for energy supply needs, for US$1.6 billion by state-owned GD Power Development in October 2013.

Speaking to NewsBase, Torgny Gunnarsson, CEO of Imprima – a firm that provides virtual data rooms for companies undergoing M&As – said the agreement highlighted the need for rapid infrastructure development in China and elsewhere in the region.

“Asia-Pacific, unlike gas-reliant Europe and oil-rich North America, does not focus its energy use on one specific fuel. Instead, the growth of its economies has made the region the largest consumer of energy on the planet, creating demand that needs to be met through a variety of methods,” he added.

“This has created an environment of M&A deals that reflect a strong utilities and distribution market as companies continue the push to upgrade energy infrastructure.”

This state of affairs is unlikely to change any time soon. As Gunnarsson says, developing economies across the continent, with varying degrees of wealth, are continuing to build energy networks fit for supplying their populations, “creating an environment that will no doubt provide rich business opportunities and a healthy M&A sector.”

It is a trend that is likely to continue not just into 2014, “but for the foreseeable future as the continent continues to grow in stature.”