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Petroleum

Oil and Gas Reserve Values Surge in Q4 1997, M&A Activity Remains sluggish

Strategic Insights

— 1 min read

Cornerstone Ventures L.P.'s Quarterly Reserve Report revealed a significant jump in domestic oil and gas reserves in the fourth quarter of 1997, with values climbing to their highest level since 1991. However, despite the increase, transaction activity remained lethargic, with only 45 deals closed in the fourth quarter, compared to an average of 68 in the fourth quarters of 1995 and 1996. The study attributes the decline in dealmaking to falling oil and gas prices and a corporate bias towards increasing reserves through drilling rather than mergers and acquisitions.

Key Takeaways:

  • Domestic oil and gas reserve values jumped 52 cents/bbl of oil equivalent (boe) in the fourth quarter of 1997 from the third quarter, reaching their highest level since 1991.
  • Only 45 deals were closed in the fourth quarter of 1997, compared to an average of 68 for the fourth quarters of 1995 and 1996, due to falling oil and gas prices and a corporate bias towards drilling.
  • The median price paid for natural gas assets in the fourth quarter was 95.9 cents/Mcf, an increase of 22% from the third quarter's 78.5 cents/Mcf.
  • Prices for oil reserves experienced significant declines, with the median value for oil-dominated acquisitions in the fourth quarter falling almost 24% to $4.49/boe from the third quarter's $5.90/boe.
  • The Midcontinent and Rocky Mountain regions were the two hot spots for oil and gas acquisitions, followed closely by the Permian Basin and the East Texas/North Louisiana regions.
  • Amoco's divestiture activity contributed significantly to M&A activity in the period, with five deals valued at over $750 million.

Statistics:

  • Watermark of oil and gas reserve values: $4.45/boe (Q4 1997)
  • Increase in oil and gas reserve values: 52 cents/bbl of oil equivalent (boe)
  • Number of deals closed in Q4 1997: 45
  • Average number of deals per quarter in 1995 and 1996: 68
  • Median price paid for natural gas assets in Q4 1997: 95.9 cents/Mcf
  • Increase in natural gas asset prices: 22%
  • Median price paid for oil reserves in Q4 1997: $4.49/boe
  • Decline in oil reserve prices: 24%
  • Hotspots for M&A activity: Midcontinent, Rocky Mountain, Permian Basin, and East Texas/North Louisiana

Sources:

  • Cornerstone Ventures L.P., Quarterly Reserve Report
  • Hal Miller, Managing Partner, Cornerstone Ventures L.P.

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