Asia continues to attract more outbound acquisitions

Decline in the renewable sector offset by rise in gas and oil sands productions. Globally, 1322 oil and gas transactions were recorded in 2011, an increase of more than 5 percent compared to 1258 in 2010, proving that this remains one of the most resilient global sectors for mergers and acquisitions.

Yet the global aggregate value of these transactions in 2011 totalled $317b, about 7 percent below 2010's $341b, largely as a result of a lack of mega deals. Globally, 71 oil and gas transactions were valued in excess of $1b, compared to 76 the year before.

Sanjeev Gupta, Asia-Pacific Oil and Gas Leader and a Transaction Advisory Services specialist Partner at Ernst & Young, said. "The oil and gas market has proved that it can adapt to higher levels of uncertainty and keep transacting".

The key questions now are how it will cope with the combination of commodity price volatility and structural contraction in global debt capacity.

The upstream segment remained the most active, representing 75 percent of total Asian deal volumes and 72 percent globally. Amongst $66b globally targeted shale related transactions, unconventional is rapidly emerging as the new conventional. Although most of the deal activity has been in North America, China is the largest shale gas resource holder in the world, with 19 percent of global resources.

If the potential in this asset base can be unlocked, this could transform the oil and gas landscape in years to come.

Activity in the downstream segment declined modestly during 2011, although overall values were comparable to 2010 levels.

Ownership change in refining and retail in mature markets continued, stemming from ongoing portfolio rebalance and capital allocation reviews amongst the majors.

Downstream activity will continue but may be more concentrated in storage and midstream rather than refining, said Gupta. Oilfield services companies, like their customer base, are globalising and consolidating. Many of the larger players are well-capitalised and opportunistic, and financial players also remain active.

As a result, the segment saw an increase in deal activity in 2011 and a positive outlook for 2012 underpinned by those seeking new geographies, new customers or new technologies. Outlook for Asia-Pacific Oil & Gas Transactions in 2012 Transaction activity will continue into 2012 but will be affected by wider economic volatility.

As ever, high quality upstream assets will attract buyers and good midstream assets will too.

Downstream, the components of the sector most heavily exposed to the global economy's problem areas will find transactions harder to finance and therefore to close. Winners will need to manage risk, volatility and capital across a global political landscape, said Gupta.

Despite substantial economic worries in the US and Europe, we expect to see more outbound acquisitions especially for upstream assets by the Asian players, notably Chinese and other broader Asian NOCs, and for unconventional gas assets.

We also expect to see increasing supplies from Iraq and Libya in 2012 to meet the increasing energy demand from Asia Pacific. We expect continuing portfolio rationalising and optimisation across sub sectors, i.e., upstream, downstream and oilfield services and among a mixed set of players (NOCs, oil majors, independents, private equity and service companies).

We also expect to see declining focus towards the renewable sector, as the industry will continue to see a rise in gas and oil sands production, said Gupta.