An M&A Energy Advisor’s perspective - The Oil Council's Drake Lawhead (DL) interviews Dana Novakovic (DN) of LB Capital.
DL: What does 2011 hold for Oil & Gas emerging markets M&A?
DN: Whilst most of our mandated work since 2009, through 2010, has been in Canada and North and West Africa, at the start of 2011 we see renewed interest, and opportunity to grow shareholder value, in the Caspian – places such as Kazakhstan, where the deal count has been limited and where most deals have been of a local or a private nature over the past 3 years. Only in January we accepted two mandates in the Caspian, a cross-border buy-side, and a sell-side in Kazakhstan. From a Macroeconomic perspective, according to projections put together by the IEA, Caspian oil and gas output will approximately double by 2030. Whilst the quickest output growth will come from Turkmenistan, the quickest growth in export quantities will still come from Kazakhstan, requiring that the country expands its oil export capacity from 1.5m bbl/d to as much as 3.5 m bbl/d. On the microeconomic level companies are carefully scrutinising technical, “soft” and financial consideration, and the risk envelope of the Caspian is recovering relative to the alternatives, as well.
DL: How is this affecting acquisition multiples and expected level of deal flow?
DN: Kazakhstan acquisition multiples have fallen significantly between 2007 and 2009, from its highest level of over ca. $5 per boe of 2P reserves between 2005 and 2007. This reflected not only the lack of acquisition finance since 2007, but also the changes in the risk envelope of the country. Whilst the bulk of renegotiations of the largest contracts such as the case with Karachaganak, may well be isolated and not spread to other large projects, a level of uncertainty remains, in particular, with respect to the export-tax regime and the local factors’ ambitions to increase its levels of ownership in the largest of the projects.
However, the risks associated with renegotiations of contracts have affected primarily the Majors involved in the largest projects, and small and medium size producers remain largely unaffected.
DL: So, are we to expect more activity in 2011?
DN: Following the decline in acquisition multiples, a number of sizable assets bearing low technical risk remain available at reasonable multiples. Some of these assets have effectively been on the market since 2009, and Kazakhstan…
