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M&A Trends in the Energy Patch

By Peter Staas on Nov. 21, 2013

Editor’s Note: Elliott Gue recently spoke to the MoneyShow’s Steve Halpern about two of his favorite master limited partnerships. Listen to the interview or read the transcript here. 

Devon Energy Corp (NYSE: DVN) yesterday announced the largest acquisition in the US energy patch this year, unveiling $6 billion purchase of privately held GeoSouthern Energy Corp’s assets in the Eagle Ford Shale.

Only a few weeks earlier, the oil and gas producer announced that it would combine its $4.8 billion worth of midstream assets with Crosstex Energy (NSDQ: XTXI) and Crosstex Energy LP (NSDQ: XTEX) to form two publicly traded entities: a master limited partnership (MLP) and its general partner.

Based on the value of the assets that Devon Energy contributed to these new entities, this merger is the second-largest deal in the MLP space this year, behind Regency Energy Partners LP’s (NYSE: RGP) recently announced acquisition of PVR Partners LP (NYSE: PVR). We analyzed the latter deal in More M&A Activity in MLP Land.

Although Devon Energy has been active in mergers and acquisitions this year as part of a strategic shift initiated a few years ago, deal flow in the global oil and gas industry has slowed considerably relative to recent years.


Source: Bloomberg, Energy & Income Advisor

Deal flow approached or exceeded $250 billion in each of the past three years. With the value of pending or closed transactions standing at $162.97 billion as of Nov. 19, mergers and acquisitions in the global oil and gas industry are unlikely to reach these heights in 2013.

And despite the attention garnered by the ongoing shale oil and gas revolution, takeovers and asset sales are also off the pace in the US oil and gas industry.


Source: Bloomberg, Energy & Income Advisor

However, deal flow in the MLP space has already eclipsed last year’s levels and should remain robust in 2014. (See MLP Takeover Talk.)


Source: Bloomberg, Energy & Income Advisor

Rumors continue to swirl that we could see more C Corps acquiring MLPs or general partners instead of creating their own publicly traded partnerships to monetize their midstream businesses. This approach yields immediate scale and unlocks additional value when the takeover target trades at a depressed valuation.

In a conference call to discuss third-quarter results, CenterPoint Energy’s (NYSE: CNP) management team hinted at the possibility of following Devon Energy’s game plan as an alternative to launching its own MLP.

Meanwhile, activist investors strongly urged embattled NuStar Energy LP (NYSE: NS) and NuStar GP Holdings LLC (NYSE: NSH) to seek a similar deal with Valero Energy Corp (NYSE: VLO).

Another part of the energy patch that appears ripe for consolidation: the North American market for oil-field services.

Among the industry’s four largest players, Halliburton (NYSE: HAL) is looking to bulk up its exposure to artificial lift, a suite of solutions such as electric submersible pumps that enhance production from mature fields. Given the relatively steep decline rates on wells in shale oil and gas plays, demand for this service and product line is expected to boom in coming years.

Meanwhile, with competition in this geographic region intensifying and private-equity outfits reportedly looking to monetize investments made several years ago, we could see more mergers andacquisitions in this area.

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