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Shale Gas Enthusiasm Drove Energy Deals in Second Quarter

Interest in U.S. shale gas propelled mergers and acquisitions in the oil and gas production sector to $42 billion in the second quarter, the second-most active quarter in the past three years.

According to Evaluate Energy, a London-based consulting firm that tracks energy deals, the past quarter’s activity was exceeded in the last three years only by the $81 billion registered in the fourth quarter of 2009, which included the $41 billion takeover of XTO Energy by ExxonMobil.

U.S. shale gas deals accounted for $12 billion of the total in the most recent quarter, Evaluate Energy said. The largest deal of the quarter involved shale gas – Royal Dutch Shell’s $4.7 billion acquisition of East Resources, specialists in Marcellus shale gas. The deal catapulted Shell into the top ranks of shale gas E&P.

Reliance Industries of India also made a big move into U.S. shale gas, committing $2.8 billion to projects with various partners. The company will be able to profit from its participation in U.S. projects when active development of India’s largely untapped shale gas resources begins, the London firm said.

Enthusiasm for shale gas also drove record bids on shale gas leases, Evaluate said. A Michigan auction for leases in the Collingwood shale raised $178 million, almost equal to the $190 million reaped by the state in lease sales in the past 81 years combined. A British Columbia lease sale for the Montney shale raised C$404 million, while an Alberta auction for the Duvernay shale grossed C$451 million of bids.

Another unconventional asset play, Canadian oil sands, also proved popular in the quarter, accounting for $5.5 billion in M&A deals, Evaluate said. The $4.65 billion acquisition of ConocoPhillips’ 9% interest in Syncrude by Sinopec accounted for the bulk of that amount.

Offshore deals worth $9.4 billion included Sinochem’s $3 billion acquisition of a 40% interest in the Peregrino field offshore Brazil.

But an Apache deal for offshore assets may run into trouble in the wake of the Deepwater Horizon accident and oil spill in the Gulf of Mexico, Evaluate Energy said. Apache agreed to acquire Mariner Energy for $3.9 billion, but nearly two-thirds of that value is attributable to Gulf of Mexico assets, which face an uncertain future in the backlash to the BP spill.

Apache’s $1.09 billion acquisition of some Devon Energy offshore assets closed in June because these assets are in shallow water.

By Darrell Delamaide for OilPrice.com

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