Record cash flows and many players fuel oil and gas M&A activity: Average deal value up 16%



    TORONTO, April 19 /CNW/ - Record cash flows have pushed deal activity in
the oil and gas industry to levels rivalling the mega merger highs of 1998.
'O&G Deals' - the first annual analysis by PricewaterhouseCoopers (PwC) of M&A
activity in the oil and gas sector - reports that average deal value in the
sector rose 18% in 2006 pushing the aggregate M&A total to US$291bn, up
US$41bn some 16% on the previous year.
    Gas deals dominated the list of the largest transactions in 2006, with
six out of the eight upstream deals in the top ten deal list. This was in
contrast to the previous year when only two deals in the top ten of all deals
and four of the top ten of upstream deals were gas dominated.
    The total value of oil and gas deal activity in North America leapt by
40%, from US$118bn in 2005 to US$164.7bn in 2006. The total number of deals
remained the same but the number of large deals, worth US$1bn or above,
increased from 21 to 32. Two of the top 10 deals in 2006 were Canadian-based
companies-Canadian Natural Resources acquisition of the acquisition of
Anadarko Canada Corporation valued at US$4.075bn, followed by TransCanada
Corps' acquisition of ANR Pipeline Company and ANR Storage Company and
interest in Great Lakes Gas Transmission Limited Partnership from El Paso
Corporation valued at US$3.844bn.
    "With companies facing growing competition on the international scene,
2006 saw renewed interest in what has up to now been more marginal oil and gas
reserves, in particular the Canadian oil sands," says Tim Nakaska, a partner
in PwC's energy practice. "Rather than sink additional money into high-growth,
but politically risky, areas, some oil majors are directing more attention to
US small-majors and the Canadian oil sands, where reserves can be acquired
with less risk, but at a higher price."
    Unlike in the past, it is not the majors that are fuelling much of the
deal momentum. Instead, the PwC survey found four key drivers of deal
activity:

    
    -   Accelerated consolidation among mid-size companies - mid-size deals
        accounted for half of the total increase in deal value. Consolidation
        in this part of the market is running apace. 2006 saw a big 59% leap
        in mid-size deal numbers and a 61% in total mid-size deal values
        which jumped from US$36.3bn in 2005 to US$58.3bn in 2006.

    -   The ascendancy of the NOCs (national oil companies) - the rise of
        NOCs from Russia, China and India continues. In the case of the
        latter two countries this is demonstrated by expansionist activity
        abroad, for example CNOOC's US$5bn deal to develop Iran's northern
        Pars gas field. In the case of Russian NOCs, principally Gazprom,
        expansionist intent abroad is combined with a strengthened hold on
        upstream assets at home, highlighted by the US$7.5bn deal to gain
        majority control of the massive Sakhalin 2 project.

    -   A boom in oil services activity - worldwide shortages of personnel
        and equipment is spurring deal activity in the services sector.
        Indeed, in 2006, there were no fewer than six US$1bn plus deals in
        this segment of the industry compared to just two in 2005. Total
        service company deal values leapt 132%, from US$5.6bn in 2005 to
        US$12bn in 2006.

    -   The appetite of private equity - private equity players, leveraged
        buyout funds and hedge funds have begun to move into the oil and gas
        sector in a significant way, armed with big investment cash piles and
        spurred by the opportunities presented by an era of higher prices.
    

    The rise of private equity players and consolidation at the top of the
midsize energy market characterized the table-topping deals of 2006. Kinder
Morgan's management and private equity buy-out and Statoil's purchase of Norsk
Hydro's oil and gas division each provided US$32bn in evidence of these two
deal forces at work.
    "In the period ahead, we are likely to see continued momentum in oil and
gas deal activity," says Clinton Roberts, also a partner with PwC's energy
practice. "The pressure to replace reserves and the structural rationale for
consolidation will remain in place. It is clear that consolidation has a long
way to run in the independent and mid-size sector of the market, particularly
in North America. In Europe, the many independent oil and gas companies listed
on the UK's AIM are a likely source and target of M&A activity."

    PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 140,000 people in 149 countries
across our network share their thinking, experience and solutions to develop
fresh perspectives and practical advice. Now celebrating 100 years of
excellence in Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its
related entities have more than 4,700 partners and staff in offices across the
country.

    "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, an Ontario
limited liability partnership, or, as the context requires, the
PricewaterhouseCoopers global network or other member firms of the network,
each of which is a separate and independent legal entity.





For further information:

For further information: Carolyn Forest, PricewaterhouseCoopers LLP,
(416) 814-5730, carolyn.forest@ca.pwc.com; Peter Zvanitajs,
PricewaterhouseCoopers LLP, (416) 941-8383 x13408, peter.zvanitajs@ca.pwc.com

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