EY-Global_oil_and_gas_transactions_review_2013

Global oil and gastransactions review 2013

Contents1. Introduction 32. Upstream 63. Midstream 126. Downstream 145. Oilfield services 186. Regional roundup 22• Africa 24• Asia 26• Australia and Oceania 28• Canada 29• CIS and Russia 32• Europe 34• India 36• Latin America and the Caribbean 37• Middle East 38• United States 39*NOTE: This report presents EY’s analysis of transaction data largely compiled by IHSHerold, Inc. Throughout this report, disclosed or reported transaction values are expressedin US dollars.2 | Global oil and gas transactions review 2013

IntroductionWelcome to EY’s annual review of globaloil and gas transaction activity. In this report,we look at some of the main trends inoil and gas deal activity over 2013 and theoutlook for transactions in the sector in 2014.We analyze the diverse dynamics in theupstream, midstream, downstream and oilfieldservices (OFS) segments, as well as look at theregional trends that underlie the macroenvironment.With an average of almost four transactions every day, oil and gashas remained one of the most active and resilient global sectors forM&A. As a capital-intensive industry, the management of capitalhas remained integral to the agendas of the sector throughout theglobal downturn and recovery. While oil and gas M&A has remainedrobust in the face of macro-economic headwinds, 2013 saw theincreasing impact of industry specific supply side trends which arelikely to have an ongoing influence on M&A activity in the sector.In 2013, the total disclosed or reported oil and gas transactionvalue was $337bn. This total was significantly lower (down 21%)than the record high of $423 billion posted in 2012. The totalnumber of oil and gas transactions, including deals withoutreported deal values, was also down sharply in 2013 — droppingfrom just over 1,800 transactions in 2012 to just under 1,400transactions in 2013 — a decline of more than 23%. Notably in2013, there was a reduced willingness to commit to largertransactions. In 2012, 98 oil and gas transactions exceeded$1 billion in value, compared with just 70 in 2013. In 2012, therewere four “megadeals” with reported values more than$10 billion, but in 2013 there were only three such deals. In 2012,the combined value of all deals larger than $1 billion topped$309 billion, while in 2013, deals $1 billion or greater totaledonly $241 billion. Interestingly though, even with the sharpreduction in the absolute number of deals in 2013, the relative mixof deal sizes (i.e., in percentage terms) has remained essentiallythe same over the last four years.The volume of deals was volatile by quarter, with activity in thesecond quarter notably stronger, and activity in the fourth quartera bit weaker. Reported deal values were also volatile by quarter,particularly given the single big transaction in the second quarter— the $60 billion supply deal between the Chinese and Russiannational oil companies (NOCs), CNPC and Rosneft. Notably, Russiaand in particular its big oil-focused NOC — Rosneft — has led thefield in terms of megadeals over the last two years.It is worth emphasizing here that this huge Rosneft/CNPCtransaction — a volumetric production payment (VPP) deal involvingupfront payments for future supply — is quite different fromconventional merger and acquisition (M&A) activity. Forcompleteness, we include these VPP deals in our analysis of thetotal oil and gas transaction landscape.Driven by normal M&A drivers of portfolio and capital optimization,the upstream remained the most active segment, with $237bn intransaction value from 1,009 deals in 2013, accounting for about70% of the global totals of both value and volume of deals. NorthAmerica continued to be the dominant region for upstream activity,generating approximately 30% of upstream transaction value andabout 53% of the global deal volume. Nonetheless, this was a slightdecline in the region’s relative importance, with upstream dealactivity in the US dropping as shale gas activity declined, largely avictim of its own success in previous years.However, 2013 also saw uncertainty over the future oil and gasprice trajectories increase in prominence which probably acted todefer a significant number of transactions. As a result, theinventory of assets either officially or unofficially on the market hasreached historically high levels.Transaction values and deal volumes in the downstream segmentwere also down sharply in 2013, with reported deal values totalingonly about $14 billion and 109 deals. In comparison, segmentvalues totaled $47 billion in 2012, with almost 200 deals.Ownership change in retail and refining in mature marketscontinued, stemming from ongoing portfolio rebalance and capitalallocation reviews. Growing oil demand and refining capacity,particularly in Asian markets, supported a brighter picture for othermarkets, albeit with relatively low transaction levels. Storagefacilities that deliver global connectivity and trading potentialcontinue to attract acquirers, with conversion of refining facilitiesalso being considered, particularly in markets with stagnant ordeclining oil demand (such as in the US or Europe) and surplus,relatively inefficient refining capacity. However, capacitymanagement has come increasingly to the fore in this markettoward the end of 2013.In contrast to the other segments, activity strengthened in themidstream in 2013, with reported deal values rising to more than$70 billion (compared to $60 billion in 2012, but well below the$88 billion seen in 2011), although the number of deals declinedfrom 104 in 2012 to 90 in 2013. With its vibrant and taxadvantagedMaster Limited Partnership (MLP) sub-segment thatrelies on acquisition activity to grow, North America accounted forabout 71% of all midstream transaction activity and reported dealvalues. We do, however, expect midstream activity levels tocontinue to increase outside of North America as infrastructureownership further disaggregates from upstream assets, driven bycapital allocation and regulatory factors. Indeed, we expect thedeployment of infrastructure fund capital into the parts of thesector where stable returns can be structured to be a global trendfor as long as monetary policy restricts the availability of alternativelow risk assets.After a strong year in 2012, activity in the oilfield services (OFS)segment struggled in 2013, with reported deal values declining byalmost 50% to about $15 billion, and the number of deals falling byalmost 25% to 185. While activity relating to onshore andGlobal oil and gas transactions review 2013 |3

Global oil and gas transaction activityReported deal value ($ billion)$450$400$350$300$250$200$150$100$5024002100180015001200900600300Number of deals (including dealswithout reported value)$02006 2007 2008 2009 2010 2011 2012 2013Reported valueTotal deals0Global oil and gas transaction activity(by deal type)Global oil and gas transaction activity: 2013(deal mix by size)200018005% 4%14%1600Number of deals14001200100080060044%19%40014%20002010 2011 2012 2013Asset dealsCorporate deals> $1 billion$10m–$100m$500m–$1000m

consensus on commodity oil price trajectory, to the ongoing debateabout the viability of shale gas basins in different parts of the world,to the potential restructuring of the entire global LNG market, itsimpact is everywhere. As always with new technologies, each waveof innovation will bring with it winners, losers and M&A activity.New forms of finance — the deployment of traditionalinfrastructure funds as well as other forms of private capitalcontinues to growas the industry gets more sophisticated at matching the returnsin different parts of the value chain to the needs of differentinvestor classes.The return of an old form of finance — one part of the M&A marketthat has suffered particularly in the last five years has been thesmall and mid-cap sectors as equity markets have been largelyclosed to these companies. With some buoyancy now coming intothe IPO markets, the financing stream will enable a resumption ofactivity by these players.Assessing the impact of these sometimes competing trends doesinvolve a great deal of uncertainty. As we look back on the 2013M&A market, the central features of the market have been a verywell-supplied M&A market struggling with efficient price discovery.We do not see any reduction in the volume of assets coming tomarket so the key to 2014 from an M&A perspective is a renewedconsensus on asset pricing. This, in turn, relies on the return ofsome form of consensus on oil and gas price trajectories. Here thesigns are relatively promising at least for oil. As such, 2013 maymark the low point for M&A activity in the sector.Global oil and gas transaction activity(total reported value by segment)Reported value ($ billion)$450$400$350$300$250$200$150$100$50Global oil and gas transaction activity(number of deals by segment)Number of deals (including dealswithout reported value)200018001600140012001000800600400200$02010 2011 2012 201302010 2011 2012 2013Upstream Downstream Midstream OFSUpstream Downstream Midstream OFSGlobal oil and gas transaction activity(deals with NOCs as buyers)US unconventional oil and gas transaction activity$140105$70200$120100$60195Reported value ($ billion)$100$80$60$40$2095908580Number of dealsReported value ($ billion)$50$40$30$20$10190185180175170Number of deals$02010 2011 2012 2013ValueDeals75$02010 2011 2012 2013Value Deals165Global oil and gas transactions review 2013 |5

» UpstreamUpstream activity off sharply2013 witnessed a more widespreadimprovement in the global economicenvironment, and expectations are thatthe often touted green shoots of recoverymay survive the winter. Europe is not yetout of the woods, the aftershocks of theArab Spring rumble on, and BRIC growthrates continue to slip, but the outlook is stillcautiously optimistic.Despite this, 2013 upstream oil and gasM&A activity has been at its lowest level involume terms since 2003, in contrast to theresilient transactions market and resurgentspend levels of last year. Reported totaltransaction value was down by 17% from2012. Excluding CNPC’s unprecedented$60 billion long term crude supplyagreement with Rosneft, transaction valueswere down 40% from 2012; the lowest totalsince 2008.While 2013 continues many of thetransaction themes from 2012, companieshave generally adopted a more cautiousapproach to M&A. Larger independentshave looked to focus on their existingportfolio, and mid-cap companies withsizeable capital commitments have had toentertain varied strategic options as accessto capital remains challenging. NOCs remaina key driver for transaction activity. Whileshareholders have pressed publicly listedIOCs for a more cautious approach, NOCshave a freer mandate to pursue acquisitionstrategies.Drop off in deal levels andM&A spendThere were a total of 1,009 transactions inthe upstream sector in 2013 down 20%from 2012, with the announced transactionvalue of $237 billion down 17% from the$286 billion seen in 2012. While much ofthe decrease can be attributed to a lowernumber of high profile, high value,megadeals, the drop off in M&A spendwas widespread and 2013 saw 22% fewerdeals over $100 million in value than inthe prior year.Global upstream oil and gas transaction activity(by deal type)350300Announced value (US$bn)25020015010050-2011 2012 2013AssetCorporate6| Global oil and gas transactions review 2013

Asset transactions continue to dominate thedeal mix accounting for 86% of deals despitea decline of 18% on 2012 levels. Corporatetransactions were down both by volumeand value, indicative of the challenges inagreeing corporate values in the currentmarket and, more so, the conservativeapproach taken by many of the would-bebuyers as they focus instead on theirexisting asset base.Quarterly deal volumes had trended upwardthrough 2012, ending the year on a high,but the year-end optimism failed to transferthrough the holiday period and Q1 2013deal volume and values were noticeablydown. There was a strong recovery inactivity and spend in Q2, largely thanks tothe CNPC-Rosneft agreement, however dealmomentum dropped off noticeably in thesecond half of the year.Upstream transaction activity by quarterTransaction volume400350300250200150100500Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413Transaction numbers Transaction value (US$bn)16014012010080604020-Announced value (US$bn)Despite the depressed activity levels, therehave been some sizeable deals, albeit not inthe same league as some of last year’smegadeals.Unconventional deals continue to featureprominently amongst the larger deals withDevon Energy’s $6 billion acquisition ofGeoSouthern Energy’s Eagle Ford assetsbeing the largest announced M&A deal inthe sector during the year. The transactionalso sees The Blackstone Group exit itsstake in GeoSouthern valued atapproximately $1.54 billion, providing asizeable return to the private equity firmfollowing its initial investment in 2011. Theshort investment timeframe, availability ofexit options, and superior returns continueto attract private equity players to the largeUS shale plays.Global oil and gas transactions review 2013 |7

Linn Energy MLP’s acquisition of Berry Petroleum for $4.99 billionwas the largest corporate acquisition of the year, and one of onlytwo corporate transactions in the top ten. MLPs have traditionallybeen more active investing in the US’s midstream and downstreamenergy infrastructure, where annual yields fit the MLP’stax-advantaged distributions model. The acquisition of Berry is thelargest corporate acquisition undertaken by an MLP and is expectedto pave the way for greater MLP investment in the upstream sector.In the conventional E&P sector, 2013 was an eventful year for theKashagan field, which was the subject of the second and thirdlargest transactions of the year. KazMunaiGas (KMG) pre-emptedConocoPhillips divestment of its 8.39% interest in the project toONGC and subsequently sold the same interest to Chinese NOC,CNPC. ConocoPhillips had previously announced the sale of itsinterest for $5.4m in 2012 subject to government approval. Theproject finally saw first production in October after a troubled13-year development history, only to shut down again less than amonth later following the identification of a major gas leak.North America leads deal activityDeal volume was down across all reported regions over the period.North America continued to dominate deal activity, but transactionvolume was materially lower than in the prior year across bothCanada (down 30%) and the US (down 15%).The regional split of reported deal value presents more of a mixedview. Notably, reported upstream transaction values weresignificantly down in the US, Canada, and Australia, collectivelysome $93 billion lower than in the prior year. In contrast, reporteddeal values were up in 2013 in Africa, the CIS/Russia, and in theMiddle East. Deal value in the CIS/Russia in 2012 was heavilyimpacted by the Rosneft TNK-BP $60 billion megadeals, and in2013 by the massive $60 billion crude supply deal between Rosneftand CNPC. Deal volumes may be down in Africa, but reported totaltransaction value was up by 85% as the region continues to attractinvestment. There were eight deals over $1 billion involving Africanassets, including CNPC’s acquisition of 28.57% of ENI East Africawhich holds 70% of block 4 offshore Mozambique for $4.2bn, itselfone of three deals over $1 billion in Mozambique.Reported upstream transaction value by region(2012 vs 2013)$120Reported deal value ($ billion)$100$80$60$40$20$0US Canada LatAm Europe Africa CIS M East India Australia Asia Global20122013Upstream transaction activity by region(2012 vs 2013)250Number of deals (including dealswithout reported value)200150100500US Canada LatAm Europe Africa CIS M East India Australia Asia Global2012 20138 | Global oil and gas transactions review 2013

Not so unconventionalUnconventional resources continue to be a major transaction driveraccounting for 294 transactions with announced deal valueof $40 billion. However, the resource base hasn’t been immune tothe wider decline in M&A spend, with total announced deal valuedown 39%.Unsurprisingly, the North American story remains the dominantcenter of unconventional deal activity, accounting for 83% of allunconventional focused transactions by number, and 95% ofreported deal value. Of note, US M&A activity for unconventionalresources accounted for about 35% of all upstream deals and about33% of all reported upstream deal value in 2013. While both thenumber of deals and the reported value were down compared to2012, the unconventional share of both was up from 2012(29% and 24%, respectively).Oil focused projects drove the lion’s share of transactions with shalegas appetite still challenged by depressed regional gas pricing. Theoil-rich Bakken and Eagle Ford shales again featured heavily in M&Aactivity, together the subject of over $16bn of transaction activityacross 70 transactions; over 40% of the total 2013 announced dealspend in the unconventional space. In contrast, the gas proneMarcellus and Utica shales accounted for $4.7bn of M&A activity,some way down from the $23bn witnessed in 2011, furtheremphasizing the cooling appetite for US shale gas as challengesabound around the justification of the historic premiums paid foracreage, and sustainability of production levels.The unconventional sector continues to attract investment fromChinese NOCs. 2013 saw Sinopec acquire a 50% interest inChesapeake’s assets in the Mississippi Lime play for $1 billion andSinochem pay $1.7 billion (including future drilling costs) for40% of Pioneer Natural Resources’ interest in 207,000 net acres inthe Wolfcamp Shale play.On the other side of the Atlantic, European shale development isstill some way behind the US and there remain a number ofchallenges to overcome. The legislative and regulatory environmentis being put in place to facilitate development but public andpolitical opinion remains divided. The UK in particular has madesignificant steps over the year to encourage exploration drilling,evidenced by Centrica and GDF Suez’s targeted market entryinvestments, but upcoming European regulation may challenge theprojected speed of development. France, meanwhile, retains itsmoratorium on fracking, evidencing the split opinions acrossEurope. Oil and gas companies are taking an equally mixedapproach. Chevron signed a 50-year agreement with the UkrainianGovernment to develop opportunities in western Ukraine, butabandoned its Romanian drilling activities due to public protests,and pulled out of its bid for Lithuanian shale licences citinglegislative concerns. San Leon’s completed $31 million merger withAurelian oil and gas sees the enlarged group become the largestforeign acreage holder in Poland.On-going challenges in junior E&PThe sector continues to be polarized between the haves and thehave-nots. Access to capital remains a challenge for many towardthe junior end of the E&P spectrum and the investor communityremains cautious.As a result there has been an increased focus on farm-out activityto fund licence commitments and exploration activity which hasinevitably led to something of a buyers’ market. With many of thelarger E&P players continuing last year’s portfolio rationalizationexercise, there has been high availability of investment options forthose with cash.In many cases, the high number of farm-in opportunities hascaused challenges for the limited pool of would-be buyers givenengineering resource constraints with limited capacity to addressthe range of opportunities across their target regions. In moreactive geographies, sales processes have needed to be more flexibleto accommodate buyer resource availability.Competing for finance in this buyer’s market has had its challenges,and strategic reviews have become something of a householdphrase in the junior markets as those struggling to access requiredfunding look to secure a future. The UK’s AIM market has seen anumber of affected companies including Ithaca’s acquisition ofValiant, San Leon’s acquisition of Aurelian, and Parkmead’sacquisition of Lochard.NOCs continue to drive M&A spendNOCs were buyers for a modest 8% of transactions by number, but atelling 22% of total announced transaction value. NOCs were on thebuyside for half of the top 10 transactions by value and were buyersin 19 asset transaction of more than $1 billion. Backed by strongcash reserves, NOCs have looked to increase production levelsthrough large acquisitions in favor of international exploration,buying not only access to required resources but also skilledpersonnel and opportunities for knowledge transfer.Chinese NOC investment appetite continued unabashed, andalongside the aforementioned unconventional investments, 2013saw the Chinese invest further afield. CNPC’s massive $60 billionlong-term supply deal with Rosneft, PetroChina’s acquisition ofPetrobras’ Peruvian interests in 3 blocks for $2.6 billion, CNPC’sacquisition of a 20% stake in the Russian Arctic Yamal LNG projectfrom Novatek, and CNOOC’s planned JV with Shell to explore in thedeep water between New Zealand and New Caledonia are allindicative of the diverse range of projects being pursued.Rosneft’s sizeable $64 billion M&A spend in 2012 was unlikelyto be repeated, but the Russian NOC continued to follow itsacquisition mandate. First, securing further asset interests inVenezuela and a partnership agreement with PDVSA at the start ofthe year, and later increasing its asset holding in the major gasproducing Yamal-Nenets by acquiring selected assets from AlrosaGlobal oil and gas transactions review 2013 |9

Number of deals (including dealswithout reported value)for $1.38 billion, the outstanding 49% in ITERA Oil and Gascompany for $2.9 billion, and Enel’s 40% stake in Arctic Russia BVfor $1.8 billion. In addition to the CNPC supply deal, Rosneft alsoconcluded a $10 billion supply deal with traders Glencore and Vitol.2013 saw continuation of the growing joint venture trend betweenNOCs and IOCs for international exploration. In addition to Rosneft’spartnering with PDVSA, Sinopec and Apache agreed to jointlytarget international upstream projects, Chevron and YPF venturedfor joint development of Argentine shale acreage, Shell and AbuDhabi National Oil Company signed a 30-year JV to co-develop themajor Bab sour gas reserves, ConocoPhillips and Petrochina linkedup to study unconventional resource potential in Sichuan Basin inChina and CNPC partnered with ENI in East Africa.Private equity still in demandPrivate equity (PE) has played an important role in the sector sincethe economic downturn, providing a key source of investment forthe mid-cap community. Despite the wider decline in M&A activity,PE firms have continued to aggressively target opportunities acrossthe upstream, downstream and services sector over the year as theoil and gas sector continues to offer opportunities for growth andattractive investment returns. PE investors were involvedin 51 upstream transactions either directly or through portfoliocompanies, up moderately from 2012 deal numbers, co-investingover $13 billion into the sector, with over $4.5 billion directedtoward unconventional resource.Fieldwood Energy, a portfolio company of Riverstone’s, acquiringApache’s Gulf of Mexico shelf operation for $3.75 billion was thelargest PE-backed investment in the year, but 2013 also sawsignificant investment in startup ventures. Many of these aretargeting shale opportunities in the US where the operating modelsappear to be more aligned with private equity capital cost appetiteand required return timeframes. For example, Riverstone andOakmont’s $350 million investment in Liberty Resources II,Riverstone and Trilantic Capital Partners’ investment in Trail RidgeEnergy Partners II, and Quantum Energy’s $300 million investmentalongside management in new venture Rio Oil and Gas are allexamples of entities being backed to pursue US unconventionalresources.However, PE firms have also looked further afield. Warburg Pincusagreed to lead an investment of up to $600 million in DelonexEnergy, a new venture targeting East and Central Africa headed byprevious Cairn Energy CEO Rahul Dhir, and toward the end of theyear, Carlyle announced that it was investing $200 million inDiscover Exploration, a new venture formed by the previousmanagement team of Cove Energy who are targeting exploration inNew Zealand and Africa.Transactions outlook for 2014Last year, we forecast continued resilience in the oil and gas M&Amarket, and many of the fundamentals remain unchanged. Thedecline in deal activity across 2013, therefore, raises somechallenging questions about the outlook for 2014. Portfoliomanagement is a core activity in the oil and gas sector. With anaverage of three deals every day, we anticipate there will continueto be a robust flow of capital within the sector. However, we expectongoing caution around the more strategic, multi-billion dollartransactions resulting in similar aggregate deal values. Withindustry players projecting flat or declining oil pricing, and costescalation and resource shortage increasingly impacting the sector,projects are coming under increased scrutiny and we anticipatefurther portfolio review activity. Several large portfolio sales havealready been announced such as RWE’s divestment of its upstreamoil and gas business, RWE Dea, and Marathon’s intention to divestits North Sea business which should help kick-start the year. Aresumed consensus on exactly where oil and gas prices are goingwill be an important factor in transaction volumes.Deal activity may have been down in recent years, but thesector remains a highly active transactions market. Financerequirements will continue to be a major driver for M&A, both atthe junior end to farm-out liabilities, and at the larger end to fundsizeable development capital expenditure requirements. WhileNorth America will remain the core of the M&A market, we expectincreasing M&A activity in East and West Africa and Latin Americaas the emerging markets continue to develop. Other geographies,to watch include the Arctic as it begins to open up, andunconventional exploration progress in Europe and Asia.Global upstream transaction activityReported deal value ($ billion)$300$250$200$150$100$50140012001000800600400200$02010 2011 2012 2013Value Deals010 | Global oil and gas transactions review 2013

Top 10 upstream transactions in 2013 based on disclosed valueAnnounceddateBuyers Sellers Nature of asset Value (US$m)21 Jun CNPC Rosneft 25-year VPP Russian crude oil supply deal 60,0006 Mar Glencore Int’l/Vitol Group Rosneft 10-year Russian crude oil supply deal 10,00020 Nov Devon Energy GeoSouth Eagle Ford, TX unconventional oil assets 6,0007 Sep CNPC KazMunaigaz 8.39% stake in offshore Kashagan oil project 5,4002 Jul KazMunaiGaz ConocoPhillips 8.39% stake in offshore Kashagan oil project 5,4004 Nov Linn Energy Berry Petroleum Corporate acquisition — oil weighted production assets 4,99914 Mar CNPC Eni Spa CNPC’s acquisition of 20% interest in Area 4 inMozambique from ENI18 Jul Fieldwood Energy/RiverstoneHoldings21 Jun Bradinor Holdings/CromeldManagement4,210Apache Acquisition of Gulf of Mexico shelf assets 3,750RussNeft 49% stake in Russian E&P company 3,66529 Aug Sinopec Apache 33.33% interest in Apache’s Egyptian gas operations 3,100Global oil and gas transactions review 2013 |11

without reported value)» MidstreamTransaction activity dropsoff in 2013, but disclosedvalue is upThe midstream segment turned in mixedresults in 2013. Deal activity with 90announced deals, was down by almost 14%in 2013. However, reported or discloseddeal value increased to $71 billion in 2013,an increase of about 17% over 2012.Midstream transaction activity, both interms of the number of deals and value, isdominated by the US and Canada. Together,the two countries accounted for more than70% of all midstream deals and about 70%of the global midstream disclosed value.Deal activity involving pipelines accountedfor the largest portion of midstreamactivity — 36 deals (40%) and almost $27billion in disclosed value (about 39% of thetotal). There were 33 transactions involvinggathering assets in 2013 (37%), with totaldisclosed deal value of almost $27 billion(about 40% of the total). Asset transactionsdominate the midstream landscape,accounting for 77% of all deals and about59% of all disclosed transaction value.The midstream’s largest deal in 2013 wasan $11.1 billion North American pipelinetransaction, involving the drop down of anumber of Spectra Energy Corporation’sgas pipeline assets into its MLP, SpectraEnergy Partners LP. Such drop downs ofassets into tax-advantaged MLPs havebecome increasingly common in the NorthAmerican oil and gas industry over the lastfew years. The year’s second-largestmidstream deal notably involved RoyalDutch Shell acquiring most of Repsol’sglobal LNG assets for $6.7 billion.With the unconventional oil and gas boom inthe US, attention to infrastructureinvestment has been at an all-time high,with substantial new pipeline, processingand storage capacity being built. We’ve alsoseen increasing consolidation, spurred onby significant tax advantages for MLPstructures. Total disclosed transaction valuein the US midstream segment has averagedalmost $45 billion per year over the lastfour years, and we expect interest andactivity to remain high.Global midstream transaction activityReported deal value ($ billion)$100$90$80$70$60$50$40$30$20$10$02010 2011 2012 2013Value Deals120100806040200Number of deals (including deals12| Global oil and gas transactions review 2013

Top 10 midstream transactions in 2013 based on disclosed valueAnnounceddateBuyers Sellers Nature of asset Value(US$m)11 Jun Spectra EnergyPartners LPSpectra EnergyCorporationUS gas transmission andstorage assets11,12426 Feb Royal Dutch Shell Repsol SA Global LNG assets 6,70010 Oct Regency EnergyPartners LPPVR Partners LP21 Oct Crosstex Energy LP Devon EnergyCorporation30 Jan Kinder MorganEnergy Partners LP21 Mar Energy TransferPartners LP8 May Institutionalinvestors5 Apr EDF; Governmentof SingaporeInvestment Corp.Copano EnergyLLCEnergy TransferEquity LPENI SpATotal SA6 May Inergy Midstream LP CrestwoodHoldings LLC;CrestwoodMidstreamPartners LP1 Apr Allianz SE; BorealisInfrastructureRWE AGUS natural gasgathering systemsUS gas gathering andprocessing assetsUS gas gathering andprocessing assetsRemaining interest informer Sunoco refiningand marketing assets andin Sunoco LogisticsPartners LP11.7% interest in Italiangas storage, pipeline anddistribution assetsGas transmission andstorage assets in FranceUS gas gathering andprocessing assetsGas transmission assets inthe Czech Republic5,4974,7004,6403,7503,6933,2622,1672,051Global oil and gas transactions review 2013 |13

» DownstreamTransaction activity drops offsharply in 2013The downstream segment saw a sharpdecline in transaction activity in 2013, withthe number of deals (109) down by almost45% compared to 2012. Activity declined inalmost all of the sub-regions, particularly soin the two sub-regions that typicallydominate downstream activity — the USand Europe. Companies still remaincautious with regard to oil demand growthprospects, particularly so in Europe whichis just now starting to see some positiveeconomic growth.The US accounted for the largest numberof downstream transactions — about 44%of the total — while Asia (includingAustralia/Oceania) and Europe eachaccounted for about 15%. The refiningsub-segment accounted for the largestnumber of transactions (28), followed byterminals (22), gas distribution (19) andretail (18).Total disclosed deal value in thedownstream segment reached just over $14billion in 2013, a decline of almost 70%compared to 2012. In terms of transactionvalue, the gas distribution sub-segmentaccounted for 34% of the downstream total,while terminals and refining accounted for29% and 10%, respectively. The 10 largestdeals with disclosed values accounted foralmost two-thirds of the downstream total.The two largest downstream deals involvednatural gas distribution systems, one inEurope and one in the US. The nextthree largest deals involved terminalnetworks — two in the US and one in Europe.Deals involving assets continued todominate the downstream transactionlandscape, with asset deals accounting for79% of the total deal volume and about 70%of the total disclosed downstreamtransaction value.RefiningAlthough it was the most active subsegment,refinery transaction activity wasrelatively slow in 2013. Of the 28 refiningdeals in 2013, there were only2 outright sales and 5 sales ofpartial interests:• Tesoro selling its 94,000 b/d refinery inHawaii to Par Petroleum• Lukoil selling its 84,000 b/d refinery inUkraine to Vetek GC• Rosneft acquired a 13.7% interest in theSarroch refinery in Italy• CHS Inc. purchased the remaining 25.6%interest in the 85,000 b/d Kansas refinery• Unipetrol acquired a 16.3% interest in twoCzech refineries from Shell• Shell acquired the remaining 10% interestin the Pernis (Netherlands) refineryfrom Statoil• Statoil acquired the remaining 21%interest in the Mongstad (Norway)refinery from ShellFour transactions involving new/proposedrefineries were announced in 2013, withSinopec involved with proposed plants inBrazil and South Africa, China Sonangolannouncing a plant in Dubai, and Gazpromin Vietnam. Also notable in the refiningspace was Suncor buying out the minorityinterest of its partner, Total SA, in theVoyager oil sands upgrader project. TheVoyager project was subsequently shelvedby Suncor.Transactions involving alternative fuelsfacilities were notably up in 2013, with fivetransactions involving biodiesel facilities(two each in the US and Malaysia, and onein Australia); and five transactions involvingethanol facilities (three in the US, and oneeach in Brazil and Indonesia).14| Global oil and gas transactions review 2013

Storage/TerminalsOf the 22 terminal and storage transactionsin 2013, the two largest transactionsinvolved gas storage assets — one in theUS — the drop down of assets into Plains AllAmerican Pipeline LP — and the other inEurope — the sale of Hungarian gas supplyand storage assets to the MVM Group byE.ON. Also important in 2013 was BuckeyePartners LP acquiring Hess’s network of20 oil product terminals, primarily on theUS East Coast and the Caribbean.Storage terminals are a crucial part of thedownstream supply and trading industry. Inrecent years, demand for capacity hasclimbed, especially in the United States andEurope, due to:• Increasing geographic imbalancesbetween refining production andconsumption• Increasing products with differentspecifications to comply with regulations,leading to a greater need of segregatedstorage and blending capabilities• Increasing activity from independentretailers/distributors and hypermarkets• The impact of oil trading, contangostorage and compliance with compulsorystock obligationsGiven the strategic nature of storage assets,competition is intense between oil and gascompanies, independent storage operators,oil traders and infrastructure funds. TheAsia region, though well served by existingstorage terminals in the major ports inSingapore, China, Korea and Japan, sawminimal storage terminal transactions in2013. The intense competition for storageterminals in the United States and Europe isexpected to continue. The alternative wouldbe to acquire refineries that have been orcould be converted into storage terminals.RetailDownstream transactions in the retail spacewere also down in 2013. A total of 18transactions were announced, with most ofthese involving service station networks.Of the 18 transactions, 12 were in the USor Europe; but the transaction with thelargest disclosed value involved a servicestation network in Peru and Ecuador.We had expected in 2013 that majorintegrated oil companies would continuewith their divestment plans to exit frommature retail markets in the United Statesand Europe. However, we only saw verylimited evidence that this was occurring.Such moves would be predominantlydriven by:• Strategic focus on upstream, not only dueto the higher level of returns but alsobecause integrated oil companies arejudged on their ability to replenishreserves. Hence, capital expenditure isweighted toward E&P.• Prioritization of limited downstreamcapital expenditures toward growthregions, such as Asia, often in a jointventure with the local oil companies.However, in mature markets, where themajor integrated oil companies have thenecessary economies of scale, they haveshown a willingness to invest. As marketingmargins are usually more robust thanrefining margins, we do expect to seecontinuing strong interest from variousparties for retail marketing networks,particularly those with decent throughputs,strategically located sites and strongnon-fuel offerings (or an ability to developone), such as:• Regional and national oil companieslooking to expand within their supplyenvelope• Independent retailers looking toimprove their market share andeconomies of scale• PE firms looking to build competitiveadvantage through specialization asopposed to control over the fullsupply chainGlobal oil and gas transactions review 2013 |15

Number of deals (including dealswithout reported value)Given the level of competition, retail marketing networks of adecent quality and size in the right markets would likely commanda premium.Trends and prospects going forwardRefining margins were generally off slightly year-on-year in mostmarkets, with US average margins continuing to be substantiallyhigher than those in Europe and in Asia. Refiners broadly keptutilization under control in 2013, but oil demand worries,particularly in Europe, remain in the forefront, especially given thesurge in new refining capacity coming out of the Middle East andAsia in the next few years, with much of that capacity relativelycomplex. As a result of the looming capacity imbalance, combinedwith increasingly stringent environmental and product qualitystandards, we expect that there will be increasing pressures onceagain on the marginal European refiners, potentially openingopportunities for transaction activity.Notably in 2013, integrated US mini-major, Hess Corporation,took three steps toward becoming a pure independent E&Pcompany — closing its remaining refining/cracking facility inNew Jersey, and selling its East Coast/Caribbean terminal network,along with its natural gas and electricity marketing units. Still tobe disposed is Hess’ retail station network, primarily in theNortheast and mid-Atlantic regions of the US. That sale isexpected to be announced shortly.Global downstream transaction activityReported deal value ($ billion)$80$70$60$50$40$30$20$10$02010 2011 2012 2013Value Deals25020015010050016 | Global oil and gas transactions review 2013

Top 10 downstream transactions in 2013 based on disclosed valueAnnounceddateBuyers Sellers Nature of asset Value (US$m)15 Jan Energeticky a PrumyslovyHoldingsE.ON; Slovensky PlynarenskyPriemyselGas transmission network in Slovakia 1,97128 May TECO Energy Continental Energy Systems Residential gas distribution customers in US 95027 Aug Plains All AmericanPipeline LPPAA Natural Gas Storage LP Remaining 36% interest in gas storage facilities in US 93928 Mar MVM Group E.ON Hungarian gas supply and storage company 8509 Oct Buckeye Partners LP Hess Corporation 20 liquid product storage terminals, primarily alongUS East Coast12 Nov Western Refining ACON Investments; TPGCapital LP25 Oct AltaGas/IdemitsuJoint Venture38.7% interest in St. Paul, MN refinery and associatedinfrastructureAltaGas Ltd; Petrogas Energy Canadian crude oil and NGL marketing assets 84210 Apr OAO Gazprom Rosneft Undisclosed interest in 72 gas distribution companies 82385083430 Jul Centrica plc Hess Corporation Energy marketing (gas/electricity) business 731*6 Nov NGL Energy Partners LP Gavilon LLC, General AtlanticResourcesOil storage, terminal and pipeline assets 690*This deal does not include $294m of working capitalGlobal oil and gas transactions review 2013 |17

» Oilfield servicesOFS transactions decliningTransaction activity in the oilfield services(OFS) sector declined in 2013, with 185deals announced compared with 243 in2012 and 201 in 2011. The averagedisclosed deal value fell from $244 millionto $179 million, continuing the decline fromthe 2011 peak of $416 million. Aggregatedeal value for disclosed transactions overthese three years indicate a downwardtrend from the 2011 high of $39.1 billion,to $30.3 billion in 2012, to $15.4 billion in2013. A slow transaction start in 2013 canpartly be explained by the very high activitytoward the end of 2012, of which thetransaction between Seadrill and Malaysia’sSapuraKencana Petroleum Berhardannounced in November serves as anexample, where the two companies agreedto combine their tender rig businesses at avalue of $2.9 billion, which was the largesttransaction of that year.The considerable drop in total deal valuebetween 2012 and 2013 is a consequenceof a combination of a slowdown in dealactivities among the global diversifiedoilfield services companies, as well as ageneral slowdown in deals in the usuallyvibrant and active OFS acquisition market inNorth America. Neither Schlumberger,Halliburton, Weatherford, Baker Hughes norNational Oilwell Varco, are to be found onthe top 10 list of OFS deals in 2013. Thelargest OFS deal in 2013 — was GeneralElectric’s acquisition of oilfield pump makerLufkin Industries at $3.1 billion. GE hasbuilt up its oil and gas business through anumber of acquisitions in recent years, andthe Lufkin deal was central in expandingGE’s well support division with artificial liftcapabilities beyond electric submersiblepumps (ESPs). The transaction implied dealvalues of 20.7x operating EBITDA.The rest of the global diversified oilfieldservices players appear to have spent 2013integrating their recent larger acquisitionsand consolidating their existing productsand services offering, as well as performingsmaller complementary acquisitions of amore strategic nature, either driven bytechnology or by service/location proximityto the customer. An example of the formerwas Schlumberger’s acquisition of GushorInc in June 2013 for an undisclosed price.The Canadian-based petroleumgeochemistry and fluid analysis companyprovides innovative production andexploration solutions in the heavy oiland oil sand (HOOS) industry. Examples ofthe latter were Halliburton’s Joint VentureAgreement with Trinidad DrillingInternational and their cooperationagreement with Gazprom Neft, announcedin September and August of 2013,respectively.A considerable number of transactions wererelated to the offshore market, where heavyassets deals dominated both within thesupport vessels category and in the mobileoffshore drilling unit category. The offshoreservice vessels related transactionsaccounted for 10% of deals in 2013.A continuous trend for the drilling rigplayers in the year was furtherconsolidation and specialization by assettype. The most active buyer was New Yorkand Oslo listed Seadrill, which continued toadd-on rigs and companies to expand itsbusiness. The largest deal was Seadrill’soffer for 49.1% of Sevan Drilling shares at$589m, which owns and operates twoultra-deepwater rigs based on thecharacteristic circular Sevan 650 design,with two more units under construction.The oilfield products manufacturingsegment remained robust throughout the18| Global oil and gas transactions review 2013

year, with multiple deals indicating a focuson strengthening the global suppliers’positioning in key markets, as well asimplementing additional cost efficienciesin the supply chains. The Tokyo-based steelmanufacturer Marubeni-Itochu TubularsAmerica Inc. acquired Sooner Inc for$600 million in cash. The deal, which wasannounced in September 2013, wasexecuted on an implied transaction value of9.0x 2013 estimated operating EBITDA.Sooner is a leading distributor of oil countrytubular goods (OCTG) and related services,and provides Marubeni-Itochu TubularsAmerica access to Sooner’s five mainUS supply bases and clients, and thusstrengthens Marubeni-Itochu’s positioningtoward the projected growth of theNorth America Land market.The following month, a similar deal wasannounced when Sumitomo Corporation ofAmerica signed a definitive agreement toacquire Edgen Group Inc. (NYSE:EDG) for$12 per share in cash. Edgen Group is aglobal distributor of highly engineered,specialty steel products to the energy andinfrastructure market with 2012 net salesof $2.1 billion, and with approximately 660employees operating in 36 locationsand 18 countries. Transaction value was$1.1 billion, providing a value indicationbased on 2013 estimated operating EBITDAof 10.7x.Buyers continued to invest to increase theirglobal presence.ValuationsOFS valuations started 2013 on the back ofthe 2012 climb — supported by:• The overall growth story• An investment focus around the E&Psegments toward offshore and deep waterexploration and production• Unconventional liquids and tight oilproduction in North America• The infrastructure investments inglobal LNG.Strong synergies associated with bothstrategic market entry as well astechnologies offering a competitive edge,drove valuation on quality OFS acquisitiontargets up to lower- to mid-teens multipleson 2013 estimated operating EBITDA.There is growing interest in oil and gas ingeneral, and in OFS in particular, from anincreasing number of PE investors. Inparticular from the medium to large PEfirms with a traditional focus on non-energyrelated industries and/or consumerproducts and services, where marketgrowth has been impacted and challengedpost the financial crisis. International PEfirm Bridgepoint acquired The FlexitallicGroup, a company specialized in sealingproducts and solutions for the energyindustry, for $590 million. The seller wasinvestment firm Eurazeo PME, which willcontinue to retain a minority equity stake.Also on the top 10 list of OFS transactionsin 2013 as measured by transactionvalue, Archer Limited agreed to sell itsNorth American Rental and Tubular divisionto an affiliate of Clearlake Capital Group, LPfor $244 million in cash. Archer’s Rentaland Tubular division, with approximately250 employees, provide equipment andservices to exploration and productionoperators across key US and Mexico landmarkets, the US Gulf of Mexico and Mexicanoffshore markets. In 2012, Archer’s NorthAmerican Rental and Tubular Divisiongenerated $100 million in revenueand contributed $45 million in EBITDA.Global oil and gas transactions review 2013 |19

Toward the second half of the year, major E&P companies raisedconcerns regarding the short to medium term market outlook forOFS products and services. These initiatives, led by French supermajor Total, were primarily driven by free cash flow concernsamong shareholders, due to an expected negative effect on thecombination of static or slight drop in the oil price trend and costinflation. This concern is yet to be reflected in valuation of qualityOFS targets.Outlook for 2014We expect to see continuing focus on market positioning andcapacity investment for the OFS industry, particularly for offshoreexploration and production (both deep and ultra-deep), as wellfor unconventional development in North America, Australia,Latin America and China. Moreover, acquisition activity will also bedriven by consolidations to capture scale of operations effects, forboth asset-heavy and asset-light OFS companies.Subsea solutions are driving offshore development designs, aconsequence of development in deeper and deeper waters — butalso due to technologies drastically improving the recovery rates forsubsea wells. Focus on intervention, stimulation and optimization ofwet wellheads and in combination with increased reservoir andwellbore data sensing, monitoring and control, it is likely that thetraditional oligopolies among the largest OFS players will bechallenged, with the natural consequence of facilitating megadealswithin the OFS space in the not too distant future.Global OFS transaction activity$45$40Reported deal value ($ billion)$35$30$25$20$15$10$5$02010 2011 2012 2013Value Deals300250200150100500Number of deals (including dealswithout reported value)20 | Global oil and gas transactions review 2013

Top 10 OFS transactions in 2013 based on disclosed valueAnnounceddateBuyers Sellers Nature of asset Value (US$m)8 Apr General Electric Company Lufkin Industries Provider of artificial lift technologies and amanufacturer of industrial gears7 Oct Solvay SA Chemlogics Group LLC Premier specialty blending company 1,3453,1108 Sep Jacobs Engineering Group Sinclair Knight Merz Pty Ltd. Strategic consulting, engineering and projectdelivery services6 Sep Marubeni-Itochu TubularsAmerica, Inc6 May Bridgepoint CapitalGroup LimitedSonner IncFlexitallic GroupProvider of oil country tubular goods distributionand related servicesSpecialized in sealing products and solutions for theenergy industry24Jul Seadrill Limited Sevan Drilling ASA Mandatory offer to acquire remaining 49.9% stake inSevan Drilling21 Feb WSP OCTG GROUP WSP Holdings Limited Merger — developer and manufacturer of oil countrytubular goods16 Jul ALS Limited Reservoir Group Global provider of specialist oil and gas services andequipment,9 Dec Kentz Corp Ltd Valerus CompressionServices1,190600590589537533US-based diversified surface service provider 43510 Dec DXP Enterprises B27 LLC Global pump and flow control service provider 285Global oil and gas transactions review 2013 |21

» Regional roundup22 | Global oil and gas transactions review 2013

Africa 24Asia 26Australia 28Canada 29CIS and Russia 32Europe 34India 36Latin America and37the CaribbeanMiddle East 38United States 39Global oil and gas transactions review 2013 |23

» Africa2013 was a year of regional transaction themes and non-AfricanNOC buyers. East Africa witnessed big ticket transactions, drivenby the significant gas discoveries in Mozambique and Tanzania.West Africa saw more transactions activity in emerging oil and gasprovinces due to the renewed exploration appetite in theWest African and West Transform Margins. Deepwater Moroccoand Tunisian deals involved new entrants to North Africa, whilethe rest of the region saw low deal volumes, probably driven bypolitical instability. South Africa and Namibia continued to attractnew entrants into the region.In 2013, while total transaction volumes fell to 92 from 107 dealsin 2012, reported transaction value rose from $11.7 billion in 2012to $22.2 billion. Eight transactions constituted more than 82% ofthis total transaction value for the entire continent and each ofthem involved development or production assets being acquired bya non-African NOC. This trend is in line with our expectations thatenergy-hungry Asian NOCs will continue to invest in assets withproven reserves, which could be supplied to meet their country’sresource needs.Along with the non-African NOCs as a major buyer class, there hasbeen an interesting mix of new buyers, such as Asian independentenergy companies, European IOCs and private equity groups fromEurope and Americas. Mid-sized deals have been driven by the needto access development capital, and early stage exploration assetsare now attracting a selective buyer class that is taking strategicpositions in frontier exploration regions.East AfricaIn East Africa, four transactions by non-African NOCs accounted for98% of the deal value in the region. These included:• CNPC’s acquisition of 20% interest in Area 4 in Mozambiquefrom Eni• ONGC and Oil India’s acquisition of Videocon’s 10% equity inArea 1 in Mozambique• ONGC’s acquisition of Anadarko’s 10% equity in Area 1 inMozambique.• Pavilion Energy recently announced acquisition of 20% interestin three Blocks in Tanzania from Ophir Energy.Interestingly, Petrobras was a seller, as it farmed out some of itsequity in two exploration stage assets offshore Tanzania to Shelland Statoil. Oil discoveries in Kenya by Tullow and Africa Oilattracted other dealmakers into Kenya and the promising geologyand proximity to current discoveries resulted in a small number ofdeals in Madagascar.West AfricaThere was a distribution of deals across West Africa with explorationasset deals in Ivory Coast, Congo (Brazzaville), Senegal and Gabon,while there were a small number of corporate acquisitions and assetdeals in Nigeria. In a pan-African deal, Petrobras farmed out 50% ofits interests in Angola, Benin, Gabon, Namibia, Tanzania and Nigeriato Brazilian investment bank BTG Pactual for $1.5 billion. Otherlarge deals in the region were Marathon Oil’s exits from two Blocksin Angola, selling its 10% interest in each to Sonangol SinopecInternational and Sonangol for $1.5 billion and $600 million,respectively. Consistent with our expectations, an emerging themein West Africa is farm outs of deepwater exploration assets tosophisticated deepwater explorationists with the ability to fundexpensive work programs.North AfricaMorocco and Tunisia led the transactions in North Africa, sharing anequal number of deals that involved some big companies as newentrants to exploration assets in the region. With the ongoingpolitical and socio-economic instability in Egypt, transactionvolumes were low but the three deals in the country werenoticeable as they involved a downstream acquisition by Total, acorporate deal by an undisclosed private company and Sinopec’sfarm-in to acquire 33.33% of Apache Corporation’s Egyptian assets,for $3.1 billion as part of a global strategic partnership between thetwo companies. In Algeria, state-owned Sonatrach exercised itspre-emption right to acquire 18.375% in Petoceltic’s Isarenedevelopment. Sonatrach was also involved, along with Spain’sCEPSA, in exercising its preferential rights as a shareholder to blocka bid from a Belgian gas transmission TSO Fluxys SA to acquire a32% stake in the Medgaz pipeline from Spanish companies Iberdrolaand Endesa.South AfricaAs emerging oil and gas provinces, South Africa and Namibia saw alow number of transactions. Namibia’s pre-salt basin and it’s highprospectivity has been the focus of potential buyers and ongoingfarm out processes by a number of companies. Recent unsuccessfulwells drilled by BP/Chariot and HRT have led the appetite to investin Namibia to move from “hot” to “warm,” but the exploration24 | Global oil and gas transactions review 2013

campaigns in 2014 and 2015 may revive the deal flow.South Africa has recently seen Total SA make a new country entry(it already has a retail network in SA) and BHP Billiton’s buy out ofits partner Global Offshore. Industry news and speculation is thatthere are likely to be several more farm-ins in the country. Theproposed new hydrocarbons law granting the state oil companyPetroSA a 20% free carry may deter investment appetite, butspeculation is that government appears to be considering industryfeedback on the proposed law.Outlook for 2014Transactions in 2014 will continue to be driven by the regionaloperational themes. East Africa is likely to see a small number oflarge value deals in Mozambique and Tanzania, while explorationassets in Kenya, Madagascar and the Seychelles will attractstrategic acquirors. The region is also likely to see some oilfieldservices deals, as exploration and development activity picks up.West African exploration will remain the domain of experiencedexplorers and companies specializing in development assets. Themuch anticipated Petroleum Industry Bill in Nigeria and the move oflarge IOCs from onshore marginal field play to deepwater offshoreis likely to produce a high number of deals, some of which willrequire deep pockets. North African deals will depend onexploration in North-Western Africa and re-instatement of politicalstability in North-Eastern Africa. Southern African deal volumes arelikely to see a modest increase that will be dependent on drillingcampaigns in 2014. Lastly, onshore exploration in previouslyunderexplored basins across the continent and an increasedappetite for African oil and gas assets from a diverse range ofbuyers of assets will also contribute to a mix of strategic dealmaking on the continent.African oil and gas transaction activity$35$30Reported deal value ($ billion)$25$20$15$10$5$02010 2011 2012 2013Value Deals120100806040200Number of deals (including dealswithout reported value)Global oil and gas transactions review 2013 |25

» AsiaWith limited oil and gas reserves, deals within the Far East regiontypically account for a relatively small percentage of the globaloil and gas M&A market which shrank further in 2013. Major dealslike the acquisition of Coastal Energy (which has assets mainly inThailand and Malaysia) and assets of Newfield and Hess brought insome excitement toward the year-end. Overall deal value was lowerdue to the absence of large deals in downstream and OFS, whichshrank by as much as 90%. However, Asian NOCs’ dominance inthe global market prevailed with the Chinese NOCs continuingtheir acquisition spree to secure energy supplies for the country.The largest deal for the year was between CNPC and Rosneft for$60 billion as upfront payment by the former, for supply of crudeoil by the latter of 300,000 b/d for the next 25 years. To note,Asian buyers accounted for almost 40% of the value of dealsgreater than $1 billion.Chinese NOCs continue to invest worldwideBesides the deal with Rosneft, the Chinese NOCs were active in theM&A market and accounted for about 35% of the value of dealsgreater than $1 billion. In previous years, these companies werefocused on unconventional plays in North America and Australia.Similar to 2012, the NOCs continued diversifying their assetportfolios with the major portion of assets located in Africa andCentral Asia. Important acquisitions by the Chinese NOCs include:• CNPC acquired a 20% interest in Rovuma Basin’s Offshore Area 4,Mozambique from Eni for US$4.2 billion• An 8.33% stake in Kashagan offshore oil development project inthe Kazakhstan zone of north Caspian Sea for US$5.4 billion• Petrobras Peru assets for $2.6 billion• And a 25% stake in the West Qurna field in Iraq from Exxon Mobil• Sinopec acquired 33.33% interest in Apache’s Egypt oil and gasassets for US$3.1 billionOther major deals entered into, include:• Sinopec’s acquisition of Marathon’s 10% stake in Angola• CNPC’s acquisition of a 20% interest in the Yamal LNG project• Sinochem’s acquisition of 40% interest in Pioneer NaturalResources shale play• China Development Bank/Petro China oil for a loan deal withPetroecuador.Increasing participation from other Asianheadquartered oil majors/investorsApart from Chinese NOCs, investors from Japan and Singaporehave also made diversified acquisitions. Temasek and its whollyowned subsidiary Pavilion Energy Resources will secure a 20%interest in the Tanzanian gas fields, as Singapore vies to becomeAsia’s gas trading hub. Key transactions made by Japan, Singaporeand Indonesian companies include:• Japan Bank for International Cooperation signed a loanagreement amounting up to $3 billion with Abu Dhabi NationalOil Company• Temasek invested $2.3 billion in Repsol acquiring 5.4% of itstreasury shares• Japex acquired 10% interest in the Progress Energy’sNorth Montney gas assets and the LNG plant that it is developingin Prince Rupert• Pavilion Energy is due to complete a 20% interest in deep-waterTanzanian Blocks 1, 3 and 4 for $1.3 billion from Ophir Energy• Pertamina and PTT have jointly acquired Hess’s Indonesianassets for $1.3 billion• Petronas acquired natural gas assets from Talismanfor $1.4 billion26 | Global oil and gas transactions review 2013

OutlookAsian NOCs will continue to look for acquisitions to increase theiraccess to reserves. Within the region, Myanmar is likely to emergeas the star performer in 2014, as nearly 60 companies have beenshortlisted for participation in a bidding round for the offshoreblocks. As the commencement date of the LNG plants draws nearerand with cost inflation beginning to taper, there will be renewedinterest in Australia. Move by the Mexican Government to reverseits declining oil production could see increased activity in Gulf ofMexico while Brazil will continue to be active as the country rampsup its crude oil production.Asian oil and gas transaction activity(excludes India and Australia)$16100Reported deal value ($ billion)$14$12$10$8$6$4$2908070605040302010Number of deals (including dealswithout reported value)$02010 2011 2012 2013ValueDeals0Global oil and gas transactions review 2013 |27

Number of deals (including dealswithout reported value)» AustraliaIn 2013, transaction activity in Oceania was relatively subdued.Continued tight conditions in equity markets meant Australia’sdeal-hungry junior oil and gas companies remained starved ofopportunity, and as a result the number of deals fell considerablyto 58, compared with 91 last year. However, the value of regionaloil and gas transactions over the period declined dramatically from$16.4 billion to $1.4 billion. Consistent with prior year’s most of thetransaction volumes (86%) and reported value (93%) were in theupstream sector.During the year, there was also substantial activity in Australia’sdownstream sector. Puma Energy (Trafigura) acquired twoindependent fuel marketers (Ausfuel and Neumann Petroleum) forwhat was rumoured to be close to $1 billion. Together these twoacquisitions gave Puma Energy a combined footprint of 330 servicestations, a bulk fuel terminal in Brisbane and a sizable wholesaleportfolio. Following these transactions, a third independent fuelmarketer, United Petroleum, announced it was seeking buyers in adeal that could be worth up to $1 billion. A key driver behind thisactivity is Australia’s growing reliance on imported fuel products asexisting refining capacity is progressively converted to storage orshut down. In October 2012, Shell closed its Clyde refinery inSydney and this year announced its intention to sell or convert itsGeelong refinery to storage, while Caltex confirmed its plans toreduce its domestic refining capacity and transform to an importsupply model with the announcement that it will close its Kurnellrefinery in 2014.While deal activity was light in the upstream segment, there weresome noteworthy transactions that may shed some light on futureactivity in the sector. Firstly, shale development in the Cooper Basingot a shot in the arm when in February Chevron agreed to invest upto $349 million over two stages in two of Beach Energy’s mostprospective permits (PEL 218 and ATP 855). If all milestones aremet, the deal would see Chevron emerge with 60% on Beach’sinterest in the project. In Papua New Guinea, participants such asTotal SA, Santos and Osaka Gas began taking stakes in emergingonshore gas fields to position for the next round of gas projects asExxon Mobil’s PNG LNG project moves toward completion and firstgas in 2014.Transactions in 2013 also pointed to new exploration frontierswith Statoil agreeing to a 30% equity share in four explorationlicenses in the offshore Ceduna Sub Basin, South Australia from BP.Meanwhile, Shell and CNOOC have established a 50:50 jointventure that will begin exploration for oil and gas in deepwaterblocks situated between New Zealand and New Caledonia.Activity is expected to continue in the downstream segment in2014 as parties look to position themselves to take advantage ofAustralia’s transforming fuel supply market. In upstream, thecontinued evaluation of vast shale opportunities in the Canning,Cooper and central Australian basins is likely to increase investmentactivity in these regions as proponents seek technical knowledgeand capital to advance their projects. As was the case in 2013, weexpect corporate transactions that improve the investment thesisand can attract new capital to be high on the agenda forjunior oil and gas companies looking to differentiate themselvesfrom the growing pack of those seeking capital.Australian oil and gas transaction activityReported deal value ($ billion)$18$16$14$12$10$8$6$4$2$02010 2011 2012 2013Value Deals12010080604020028 | Global oil and gas transactions review 2013

» CanadaGlobal interest in Canada’s oil and gas industry continues to bestrong although the actual transactions executed in 2013 pales incomparison to the robust deal market that existed in 2012. Therehas been considerable “swirl” in the Canadian energy business,resulting in a significant amount of change in availability of capital,public support and overall project economics. The question iswhether this change is cyclical or structural in nature.The significant decline in deal activity in Canada in 2013 comparedto the past four years reflects the cautious approach by historicallyactive foreign acquirers who may have been scared away by theuncertainty associated with the Canadian Government’s announcedposition on foreign investment at the end of 2012. In December2012, as part of approving the CNOOC acquisition of Nexen and thePETRONAS acquisition of Progress Energy Resources, rules of theInvestment Canada Act were changed to limit a state-ownedenterprise’s ability to take “control” positions in Canadian oil sandsassets. Asian buyers (mostly Chinese State Owned Enterprises orSOEs) stopped — or at least slowed their buying — not only oil sandsassets but all other Canadian assets too. It is important to notehowever, that these rules do not apply to LNG, conventionaloil and gas and unconventional plays, outside the oil sands but theuncertainty slowed the momentum.Looking backThe volume of Canadian transaction activity in 2013 was down by32% compared to 2012 (178 vs 260 — publicly announced) anddeal values fell even more dramatically decreasing by 77% year overyear, from $55.5 billion to $12.8 billion. 2012 deal value wassomewhat skewed due to the $15.1 billion CNOOC Limited-NexenInc and $5.8 billion Petronas-Progress Energy Resources deals;however, if you normalize these, deal value still declined by63% year over year.While the 2012 deal market was dominated by 10 blockbustertransactions with a deal value of more than $1 billion, there wereno Canadian transactions in 2013 that met this threshold. In factthere were only seven transactions that surpassed the value of$500 million with the most notable ones including:• Centrica plc and Qatar Petroleum’s joint $986 million acquisitionof Suncor Energy’s producing conventional gas weighted assets• ConocoPhillips selling its 100% interest in the undeveloped Clydenoil sands leasehold located in Alberta’s Athabasca oil sands regionto Imperial Oil and ExxonMobil for $720 million• A group of institutional investors acquiring a 6.5% stake inCanadian Oil Sands Ltd., with its Alberta oil sands SyncrudeProject, from Newmont Mining Corporation for $710 millionAs has been the case over the last number of years, upstreamtransactions dominated the deal market, representingapproximately 90% of the deal value and 84% of the deal volume.There was virtually no transaction activity in the midstream sectorand only one transaction of note in the downstream sector asSuncor Energy acquired the remaining 49% interest in theproposed Voyageur oil sands upgrader in Alberta from Total SAfor $505 million.There were 24 publicly announced transactions in the oilfieldservices space at a total deal value of $738 million, with the largestdeals being represented by:• Keller Group Inc.’s acquisition of North American Piling fromNorth American Energy Partners Inc. for $223 million• Western Energy Services Corp acquiring all of the issuedand outstanding shares of IROC Energy Services Corp for$170 million.The highly fragmented Canadian oilfield services market continuesto be a consolidation target, resulting in heightened interest fromboth private equity and strategic acquirers alike.Asian investment into Canada accounted for only $1.2 billion in2013 compared to a staggering $27.3 billion of total deal valuein 2012, and was well below the $6.1 billion in 2011 and$9.2 billion in 2010, as Asian NOCs re-evaluated their Canadianinvestment strategy.The mix of deals between asset packages and corporate acquisitionshas shifted strongly toward asset transactions, which constitutedapproximately 77% of all Canadian transactions in 2013. In part,this reflects the nature of buyers, as historically active foreignacquirers have slowed their transaction activity in light ofInvestment Canada Act’s ruling. Many of the asset packages thatdid change hands were focused on the tight gas/shale gas plays inBritish Columbia and northwestern Alberta.One of the corporate deals of note was PKN Orlen SA’s acquisitionof the publicly traded E&P company, TriOil Resources Ltd, for a totaltransaction value of $244 million. This was Poland’s initial ventureinto the Canadian energy market.It was a buyers’ market in Canada in 2013. Generally, transactionvalues on a per boe basis — both for reserves and production —were at multi-year lows — and meaningfully below comparableUS metrics.Global oil and gas transactions review 2013 |29

Looking aheadCompanies continue to be cautious and there appears to be a realdesire globally to move investments to the West. Global playershave a strong desire for certainty and transparency and the belief isthat Canada can offer both. In addition, the unconventionalresource revolution in North America creates opportunities of scalefor global players — coupling the geopolitical security with access tothe latest technologies. The findings of our ninth biannual globalCapital Confidence Barometer (CCB) indicates that overallconfidence in the Canadian economy is up as 98% of Canadianexecutives saw the Canadian economy as stable to improvingcompared to 85% six months ago. In addition, as the recent CCBpoints out, Canada is ranked fourth in the Global top 20 attractivedestinations, up from fifth a year ago.The investment climate and outlook for Canada continues to bepositive and the opportunities that exist in the oil sands and on thebuild out of the LNG plays have huge upside. Both of theseinitiatives require large global players who understand the longinvestment cycles involved.There are multiple LNG projects under development due to theexistence of the extensive reserves to support long-term contractsand the related strong economics. Asia and the rest of the worldhave already taken note and are involved in most of theseinitiatives. This however will not be without its challenges due to thelevel and cost of the infrastructure required, cost pressures withrespect to executing large construction projects and on relatedpeople resource constraints, and global competition associated withthe de-linking of the oil price from LNG pricing. It is anticipated thatover the next 25 years, the required LNG spend in Canada could beupward of $200 billion between capital requirements related tonatural gas drilling, the construction of LNG terminals, and the buildout of required pipelines and related midstream infrastructure.With respect to the oil sands, robust investment plans will continueand even though the asset hasn’t changed, the cost of capital has.Over the next 30 years, many expect more than $200 billion to bespent in the oil sands with annual capex of approximately$25 billion and further annual operating costs of $20+ billion.Oil sands developers will struggle with stalled deals, valuationchallenges and a very real access to capital restraint that haveplagued the junior oil sands sector. They will continue to wrestlewith containing rising costs, limited short-term market access,heightened public awareness and regulatory scrutiny, andalternative competing supplies. In spite of that, the long-termeconomics of the oil sands remains competitive with most of theglobal oil projects and proponents see the development of newtechnologies as allowing oil sands projects to achieve material costreductions in future years.What else do companies have to consider in 2014?• Oil prices — regional pricing spreads, new producers andproducing regions and nuanced price influencers• Resources — rise of unconventional oil and gas, oil sands, cycletime and cost of unlocking new unconventional reserves• Technology — widespread process adoption required in the areasof horizontal drilling/multi-stage fracking, steam-assisted gravitydrainage (SAGD) and water management• Operations — operational excellence, people management andretention, maintaining social license, and cost managementand control• Access to capital — stagnant capital markets, energy security vsreturns (international vs. domestic), stable price forecasts, amplesupply and long-term capital projectsTaking into account the aforementioned factors, transactionactivity in Canada is set to continue in the year ahead. Domesticplayers still need to achieve scale to manage the risks ofunconventional resource development, along with ongoing costpressures. Foreign interest will continue to remain strong butforeign buyers will learn to structure future transactions creativelygiven the Canadian Government’s position on “Net Benefit toCanada” as complete control transactions will be far moreinfrequent, as was witnessed in 2013.30 | Global oil and gas transactions review 2013

Number of deals (including dealswithout reported value)A structural shift is underway in the Canadian oil and gas industry.Winners and losers will emerge. Access to and the cost of capital iskey — and simplistically 2013 can be described as a year wheremost Canadian companies struggled to access sufficient amountsof fairly priced capital to support a robust transactions market,and foreign buyers sat on the sidelines. Canadian oil and gasreserves — while “world-class” in size, are challenged by difficultoperational conditions, limited market access because of theunconventional resource boom in the US and delays in majorpipeline projects (i.e., Keystone), and a historical reputation asbeing a costly place to do business. A robust transaction marketis essential to the overall health of the Canadian energy industry,which has historically been built around a model whereentrepreneurs initiated new plays and then sold out to largerplayers to start again. Foreign producers will continue to look forCanadian opportunities. LNG projects in Canada will proceed andUS PE will continue to take advantage of scarce capital from publicmarkets. While the shift in the business appears “structural,” oneconstant will be that the Canadian business will re-invent itself andin doing so, attract the world’s attention once again.Canadian oil and gas transaction activityReported deal value ($ billion)$40$35$30$25$20$15$10$5$02010 2011 2012 2013Value Deals300250200150100500Global oil and gas transactions review 2013 |31

» CIS and RussiaIn 2013, the CIS countries and primarily Russia continued lastyear’s strong activity in oil and gas transactions. The reported valueof deals in CIS/Russia in 2013 increased by 46% to more than$110 billion, as compared to the 2012 total of almost $75 billion.Transaction values in both 2012 and 2013 were skewed bymega-transactions: in 2012, the Rosneft transactions for TNK-BPtotaled almost $60 billion, while in 2013, activity was dominated bythe massive crude supply deal, also valued at $60 billion, betweenRosneft and the Chinese NOC, CNPC. Deal volumes were up by 48%in 2013.Among the key 2013 trends in Russian oil and gas sector are:• A continuation of industry consolidation• An appearance of new large gas segment players, such asRosneft and NOVATEK• Rosneft remains the most active player and driving force intransactions in RussiaRosneft has acquired the remaining 49% share in ITERA Oil and GasCompany LLC, through an ownership interest for consideration of$2.9 billion. This deal will likely enable Rosneft to expand itsfootprint in the sector and enhance its sales and marketingcapabilities.In November 2013, Rosneft (through the newly owned ITERAOil and Gas Company LLC) completed the acquisition of a 40% stakein Arctic Russia BV from Enel for cash consideration of $1.8 billion.Arctic Russia BV owns 49% of the share capital in SeverEnergiawhich owns licenses in four large oil and gas fields (Samburgskoye,Yaro-Yakhinskoye, Yevo-Yakhinskoye and Severo-Chaselskoye) inYamal-Nenets Autonomous Region of Russia. The aggregatedinterest of Rosneft in SeverEnergia will equal 19.6%.In 2Q13, Rosneft signed the Completion Deed for Russian offshoreblocks in the Barents Sea and the Sea of Okhotsk, confirmingagreements on the Arctic shelf exploration with Statoil and Eni.In October 2013, Rosneft acquired the remaining 65% stake ofTaas-Yuriakh Neftegazodobycha LLC for more than $2 billion. Thecompany owns the Srednebotuobinsk field in East Siberia, astrategic region for Rosneft. Production on this greenfield startedin October 2013 and its volumes are expected to reach1 million tonnes in 2014 and increase to over 5 million tonnesper annum by 2017. Crude oil supplies from the field may go toRosneft refining and petrochemical units in the Far East as well asto China as part of the long-term 25-year agreements signed inJune 2013.Russia’s largest independent gas producer, NOVATEK, alsoconsiders the Asia-Pacific market as quite an attractiveregion. Having already signed a 15-year deal with CNPC onLNG supplies of at least 3 million tonnes from Yamal, NOVATEKhas gone further and sold a 20% stake in the Yamal LNG projectto CNPC.LUKOIL also continued the consolidation trend and in April 2013purchased a 100% stake in Samara-nafta, an exploration andproduction unit operating in Volga region, from Hess Corporationfor $2.1 billion. At the same time, LUKOIL acquired the remaining50% (increasing ownership to 100%) of shares of Kama-oil,operating in Volga region with oil reserves of 12.8 million tonnesfor $400 million.Rosneft has also been active in the international arena. Thecompany signed an agreement with Corporacion Venezolana delPetroleo, subsidiary of PDVSA, to create a joint venture to developheavy oil reserves in Venezuela as part of the Carabobo-2 project.Rosneft also acquired a 30% interest in 20 deepwater explorationblocks in the Gulf of Mexico held by ExxonMobil. Along with that, inJune 2013, LUKOIL and Rosneft were awarded licenses on theNorwegian continental shelf in the Barents Sea (30% and 20%,respectively). Gazprom neft increased its presence in the Asianmarket for refined products, (one of the fastest growing and most32 | Global oil and gas transactions review 2013

Number of deals (including dealswithout reported value)promising markets globally). The company signed a frameworkagreement with PetroVietnam covering the terms of acquisition andfurther modernization of Dung Quat oil refinery through purchasinga 49% stake in Son Refining and Petrochemical, which controls andmanages the refinery.Transaction volumes and the number of deals increasedsignificantly in Kazakhstan in 2013, with disclosed deal valuesreaching more than $11 billion in 2013. The cornerstone of thislarge growth is the entry by CNPC into the Kashagan offshoreproject, where first oil was produced in September 2013. CNPCacquired an 8.33% stake for $5.4 billion from KazMunaiGas, whichhad earlier acquired ConocoPhillip’s stake in the project.In Ukraine, reported oil and gas transaction values were also up in2013, while deal activity declined. The largest of these four dealsinvolved the acquisition of the Odessa Refinery by Vetek Groupfrom LUKOIL.CIS/Russian oil and gas transaction activity$120$100Reported deal value ($ billion)$80$60$40$20$02010 2011 2012 2013Value Deals80706050403020100Global oil and gas transactions review 2013 |33

» EuropeEurope represents a diverse market for oil and gas M&A. There issubstantial regional activity across the upstream sector, andmidstream and downstream assets. Many European deals have abroader, global angle with European stock markets, particularly inthe UK, being home to a wide range of international players and theestablished oilfield services industry in Europe also boasting manycompanies with a proven global footprint.2013 saw European oil and gas transaction volumes decline by22% to 162 from the 208 deals recorded in 2012. The totalreported value of oil and gas transactions also declinedto $20.7 billion from $30.3 billion in 2012, a decline of almost32%, although only 59 transactions reported deal values.Accordingly, the average reported deal value in 2013 of$351 million was an increase on 2012’s average of $330 million,reflecting the impact of a number of large, strategic deals acrossthe sector in Europe.All segments of the European oil and gas market experienced avolume decline in 2013, and only the midstream segment recordedan increase in total deal value. Upstream remained the most activesegment of the market; however upstream slipped to second placein overall deal value behind midstream, which overtook bothupstream and downstream to be the largest value segment ofEuropean oil and gas M&A in 2013.The majority of European upstream activity centers on theNorth Sea, and this segment of the market continued to deliverthe greatest share of deal volume with 80 deals reported in 2013.The value of such transactions accelerated in the second half ofthe year, following a fairly quiet first two quarters. The largestNorth Sea transaction was OMV’s $2.65 billion purchase of aportfolio of UK and Norwegian assets from Statoil.Apart from the above-mentioned asset transactions, there were anumber of public company takeovers involving European upstreambusinesses. Canada-listed Ithaca Energy acquired Valiant Petroleumin a deal valued at close to $500 million, and Norwegian PE-backedSpike Exploration acquired Bridge Energy for close to $200 million.These transactions are representative of a wider capital marketsdynamic, with public takeover deals likely to continue into 2014,reflecting a combination of attractive valuations and stretchedbalance sheets in the junior space.The European midstream sector, particularly for gas pipelines,witnessed a number of large transactions reporting seven deals in2013 with a combined value of $9.8 billion. Total divested itsSouth-West France transportation and storage business (TIGF) to aconsortium of Snam, GdF and Singapore’s sovereign wealth fundfor approximately €2.4 billion ($3.3 billion). RWE’s shares inNET4GAS, a Czech gas transmission business, were sold to Allianzand Borealis Infrastructure for a little over $2 billion. Theinvolvement of financial buyers in both of these transactionshighlights an ongoing trend of disaggregation of Europeanmidstream assets, where specialist sources of capital will continueto be likely acquirers from large corporates, seeking to managetheir capital across a broader portfolio.In addition to capital transaction drivers, political and regulatoryfactors continued to play a role in the opportunities coming tomarket. A majority stake in Greece’s natural gas distributor, DEFSA,was sold to SOCAR, the State Oil Company of Azerbaijan, forapproximately $500 million.Europe’s downstream industry saw deal volumes declinesignificantly to 16 from 36 in 2012. Reported values also droppedto $3.4 billion, compared to $10.1 billion in 2012. In the oil market,refining assets continue to be in oversupply (albeit with fewer deals)whereas strategic retail portfolios offer attraction for bidders.E.On’s $2 billion disposal of its 24.5% in Slovakian company SPPwas the notable downstream gas deal in 2013.34 | Global oil and gas transactions review 2013

Number of deals (including dealswithout reported value)Europe’s oilfield services industry is home to many companiesactive on a global stage. Fourteen European oilfield service dealswere reported in 2013, with a disappointing $0.5 billion in totalreported value. These statistics highlight not only the range ofattractive businesses in Europe, but also the challenge many ofthem face in achieving a global scale across broader productofferings.2014 heralds the prospect of strengthening economic recovery inEurope. This should support positive sentiment in midstream anddownstream activity, the two segments that have been the mostinfluenced by regional economic trends in recent years. Perhapscounter-intuitively, economic improvement is also likely tocrystallize resolution around underperformers and a “refresh” inthe financial markets could open the doors for a next generation ofgrowth businesses, particularly likely among Europe’s upstream andoilfield services sectors.European oil and gas transaction activity$35$30Reported deal value ($ billion)$25$20$15$10$5$02010 2011 2012 2013Value Deals250200150100500Global oil and gas transactions review 2013 |35

» IndiaM&A activity in the oil and gas sector in India continued to bedominated by outbound acquisitions by Indian NOCs. Indiaimports approximately 75% of its crude oil and 30% of its gasconsumption and continues to be a growing energy market. Further,the Indian gas market continues to be supply deficient. Securinglong-term oil and gas supplies through equity participation inmajor oil and gas developments across the world has been theunderlying theme of outbound acquisitions by Indian NOCs — ONGCVidesh Limited (OVL) and Oil India Limited (OIL).There were three large outbound transactions by OVL andOIL totalling a transaction value of $5.6 billion. Of these,two transactions involved acquiring 20% interest (10% each fromAnadarko and Videocon) in the Rovuma Area 1 Offshore Block inMozambique. Located off the eastern coast of Africa, the RovumaArea 1 Block with its large resource volumes, provides a long-termgas supply source to the southern region of India. The other largetransaction involved OVL’s exercise of its pre-emption rights (a firstfor an Indian Company in the sector) for increasing its interest inthe BC-10 heavy oil offshore concession in Brazil.Inbound and domestic deal activity in the oil and gas sector wasvery limited due to the prevailing policy environment and currencyvolatility compared to the previous years. Year 2013 witnessedthree transactions (two in the upstream sector and one in pipelinessector) with a total deal value of $32 million compared to$4.4 billion from eight transactions in 2012.Outbound M&A activity from Indian NOCs is expected to remainstrong in 2014. LNG regasification and petrochemical projects areexpected to attract domestic and inbound M&A interest. Thetransactions activity is expected to be in form of joint ventures inthese large projects — the underlying driver being to induct astrategic partner who can be expected to bring strong raw materialsourcing capabilities and access to international markets for theIndian player.Indian oil and gas transaction activityReported deal value ($ billion)$12$10$8$6$4$2$0ValueDeals

» Latin America andthe CaribbeanOil and gas transaction activity in Latin America and theCaribbean in 2013 declined slightly in reported deal valueterms — dropping to just under $15 billion from just over $15 billionin 2012. Deal numbers, however, were down by almost 25% fromlast year. Transaction activity in the region is dominated byupstream, which accounts for about 80%, both in deal value anddeal volume terms.While activity in the region has historically been dominated by dealsin Brazil, activity in 2013 was more broadly distributed across theregion. Notable in 2013 were the inbound investments by NOCsfrom China, Russia and India; critically, NOCs accounted for three ofthe five largest deals in the region in 2013. The largest deals of theyear included: PetroChina and CNPC’s deals for assets in Peru andEcuador; Pacific Rubiales purchase of regional independentPetrominerales; ONGC Videsh’s purchase of assets in Brazil fromPetrobras; and Chevron’s deal with YPF SA for a stake in theArgentine shale oil and gas basins. Colombia remains a relativelybenign jurisdiction for conducting M&A activity. The biggest gamechanger on the horizon is the reform program in Mexico. While thisis going to be a slower process it could open significantconventional oil investment opportunities and oilfield serviceopportunities over the next five years.Latin American oil and gas transaction activityReported deal value ($ billion)$100$90$80$70$60$50$40$30$20$10$02010 2011 2012 2013Value Deals140120100806040200Number of deals (including dealswithout reported value)Global oil and gas transactions review 2013 |37

» Middle EastWhile the Middle East has substantial oil and gas reserves andproduction, in the context of the global transactions market, bothcurrent and historic levels of activity are relatively low. Relative tooverall oil and gas transaction activity, during 2013, the upstreamsector dominated both in terms of number and overall transactionvalue. The oilfield services sector witnessed some continued activitywhereas the midstream and downstream sectors displayed eitherlimited or no transactions. The deal activity was geographicallyspread with countries, such as the UAE, Oman and Iraq, being thelocations of multiple transactions. Overall, the actual number oftransactions in the region fell 40% from 44 in 2012 to 26 in 2013,whereas the overall transaction value increased slightly from$2.7 billion in 2012 to $3.1 billion in 2013.From an upstream perspective, while the number of transactionsdecreased from 35 to 16 from 2012 to 2013, the total value wasup 35% to $3.1 billion. In terms of upstream, the Middle Easttransaction value relative to the total global upstream transactionvalue, there is an upward trend with 0.8% in 2011, 1.5% in 2012and 1.8% in 2013. The combined number of transactions in theUAE, Oman and Iraq represented almost 60% of the total number ofupstream transactions in the Middle East. There has been a recentannouncement that Occidental Petroleum is looking to sell aminority stake in their Middle East oil and gas business. If this saleis to proceed, then it would represent a substantial transaction inthe context of the Middle East market.The level of transactions in the oilfield service sector remainsmodest, even though there continues to be a desire bygovernments and NOCs to attract oilfield services companies intothe region. This will become increasingly important, if thedevelopments of unconventional resources in countries such asSaudi Arabia are to proceed. Oilfield services transactions remainlow in the region with only five transactions completed in 2013 withthree of these being located in the UAE. However, this is an increasefrom the number of transactions completed in 2011 and 2012,which were two and three, respectively. One significant potentialtransaction in the region is that NPS Energy has recently putthemselves back up for sale after a prior sales process fell through.As is consistent with the past two years, no midstream transactionswere completed in 2013. This is a result of the very high level ofstate ownership and therefore little, if any, availability in the market.Finally, in the downstream sector there were five transactions ofwhich two were in the petrochemicals sector. This is a similar levelof activity that we have seen in previous years. Within theMiddle East refinery sector, there are a number of potentialgreenfield and brownfield (upgrading and expansion) projects thatcould drive some transaction activity going forward.Middle East oil and gas transaction activityReported deal value ($ billion)$5$4$3$2$1$02010 2011 2012 2013Value Deals50454035302520151050Number of deals (including dealswithout reported value)38 | Global oil and gas transactions review 2013

» United StatesThe US oil and gas transaction market was very active in 2013,although it was depressed compared to the past two years’ activitylevels. Overall in 2013, oil and gas transaction values decreased37%, while deal volume decreased 21% compared to 2012. UStransactions accounted for nearly 31% of total global oil and gastransaction values in 2013 (vs 44% in 2012) and 39% of thetransaction volumes (vs.38% in 2012). In general, 2013 wascharacterized by a fairly steady flow of US oil and gas M&A activityin each of the first three quarters of the year with a drop-off in dealcount in the fourth quarter. Interesting to note that total US dealvalue in the fourth quarter jumped over 160% as compared to thethird quarter thanks to the four largest deals of the year announcedin the final quarter of the year.A consistent theme for US transaction activity in 2013 continuedto be investment in the midstream subsector. Of the ten largesttransactions in the year, five were midstream transactions. MasterLimited Partnerships (MLPs) continued to dominate the transactionscene, given the tax and cost-of-capital advantages of thesestructures.In 2013, the midstream sector was very active although totalreported deal values were down about 15% and deal volumes downapproximately 27% compared to 2012. One potential contributor isthat many private midstream companies are electing to pursue apublic listing through an MLP IPO as opposed to a sale. In 2013,there were 21 MLP IPOs, beating the former record of 14 MLP IPOsin a year established in 2007.US upstream sector reported deal values decreased by 42%, withdeal volumes down 17%. The US upstream transactions accountedfor nearly 71% of all US oil and gas transaction volumes in 2013,which is higher than in 2012 where this sector accounted for 67%.However, the percentage of the US oil and gas transaction valueassociated with upstream transactions decreased from 60% in 2012to 54% in 2013. Some of the largest deals in the upstream sectorincluded: Devon Energy’s acquisition of GeoSouthern Energy for$6 billion, and Fieldwood Energy’s acquisition of Gulf of Mexicoproducing assets from Apache Corporation for $3.75 billion.The oilfield service sector deal volume was down approximately26% in 2013 compared to 2012 but it was roughly flat comparedto 2011 and over double the level experienced in 2010. Japanesecompanies continued their expansion in the Oil Country TubularGoods (OCTG) distribution sector with Sumitomo’s announcedacquisition of Edgin Murray and Marubeni-Itochu’s purchase ofSooner Pipe. Well completion technologies, water solutions,artificial lift and specialty chemicals were among the most soughtafter targets in the oilfield service sector.The downstream sector continued to experience an environmentthat is not conducive of deal activity, with refinery utilizations stillbelow five-year averages and tight crack spreads. Downstreamsector deal values decreased 61% in 2013 versus 2012, while dealvolumes were down 38% year over year. The commencement ofoperations of the southern portion of the Keystone pipeline mayalleviate some of the current market dislocations and serve as acatalyst for deals in the downstream sector. The improving globaleconomy may boost global demand for refined products particularlyfrom Europe, which may draw investors’ attention to refining assetsin the US Gulf Coast.Looking at 2014, uncertainty as it relates to the global economy,the US quantitative easing and the corresponding commodityprices, as well as additional potential regulation, remain key factorsfor the US oil and gas industry. On the positive front, robust currentoil prices, solid corporate balance sheets and significant privateequity capital targeting oil and gas investments point to strongoil and gas deal flow. Additionally, low natural gas prices havespurred investment in gas export facilities in the US, and theinterest from foreign investors in Asia and Europe remains strong.US oil and gas transaction activityReported deal value ($ billion)$180$160$140$120$100$80$60$40$20$02010 2011 2012 2013ValueDeals8007006005004003002001000Number of deals (including dealswithout reported value)Global oil and gas transactions review 2013 |39

Our Global Oil & Gas Transaction AdvisoryServices contacts:Andy BroganGlobal and EMEIA Oil & GasTransaction AdvisoryServices Leader+44 20 7951 7009abrogan@uk.ey.comJon McCarterAmericas+1 713 750 1395jon.mccarter@ey.comSanjeev GuptaAsia-Pacific+65 6309 8688sanjeev-a.gupta@sg.ey.comRoger DartnellAustralia+61 3 9288 8272roger.dartnell@au.ey.comMore EY Oil & Gas publicationsavailable at ey.com/oilandgasAjay AroraIndia+91 124 464 4000ajay.arora@in.ey.comKunihiko TaniyamaJapan+81 3 4582 6400kunihiko.taniyama@jp.ey.comGrigory ArutunyanMoscow+7 495 641 2941grigory.s.arutunyan@ru.ey.comJon ClarkUnited Kingdom+44 20 7951 7352jclark5@uk.ey.comTabrez KhanAfrica+27 82 603 5699tabrez.khan@za.ey.comEY | Assurance | Tax | Transactions | AdvisoryAbout EYEY is a global leader in assurance, tax, transaction and advisoryservices. The insights and quality services we deliver help build trustand confidence in the capital markets and in economies the world over.We develop outstanding leaders who team to deliver on our promisesto all of our stakeholders. In so doing, we play a critical role in buildinga better working world for our people, for our clients and for ourcommunities.EY refers to the global organization, and may refer to one or more, ofthe member firms of Ernst & Young Global Limited, each of which isa separate legal entity. Ernst & Young Global Limited, a UK companylimited by guarantee, does not provide services to clients. For moreinformation about our organization, please visit ey.com.How EY’s Global Oil & Gas Center can help your businessThe oil and gas sector is constantly changing. Increasingly uncertainenergy policies, geopolitical complexities, cost management and climatechange all present significant challenges. EY’s Global Oil & Gas Centersupports a global practice of over 9,000 oil and gas professionalswith technical experience in providing assurance, tax, transaction andadvisory services across the upstream, midstream, downstream andoilfield service sub-sectors. The Center works to anticipate markettrends, execute the mobility of our global resources and articulate pointsof view on relevant key sector issues. With our deep sector focus, we canhelp your organization drive down costs and compete more effectivelyto achieve its potential.© 2014 EYGM Limited.All Rights Reserved.EYG no. DW0330CSG/GSC2013/1247953ED NoneThis material has been prepared for general informational purposes only and is not intended tobe relied upon as accounting, tax, or other professional advice. Please refer to your advisors forspecific advice.Oil and Gas EyeA quarterly update of our O&G Eye Indexand analysis of the performance of theAIM listed O&G companies.Global Capital ConfidenceBarometerThe Global Capital Confidence Barometeris a regular survey of senior executivesfrom large companies around the world,conducted by the Economist IntelligenceUnit (EIU).Global oil and gasreserves study 2013The Global oil and gas reserves study isa compilation and analysis of certainoil and gas reserve disclosureinformation as reported by companies intheir annual reports filed with the UnitedStates (US) Securities and ExchangeCommission (SEC) or in their publiclyavailable annual reports. This reportpresents the worldwide and regionalexploration and production (E&P) resultsfor 75 companies for the five-year periodfrom 2008 through 2012.Cash in the barrelThe study shows that global oil and gascompanies continued to improve theirworking capital (WC) performance in2012. For the oil and gas industry as awhole, this recent improvement bringsthe total reduction in C2C achieved since2007 to 5%, with the start and the end ofthe period under review both showingsimilar levels of oil prices at aroundUS$90 per barrel.You can also connect with us using social media:@EY_OilGasEY Global Oil & GasCenterEY Global