In a new study, Wood Mackenzie seeks answers to the question “Do upstream acquisitions add value and reserves?” The study, ‘Value Creation through Acquisitions’, analyzed 170 international deals done by 25 companies.
WoodMac director David Black explained, “The 25 companies in the study group spent over $140 billion on international acquisitions between 1996 and 2002 - equivalent to around $180 billion in today’s money. Overall these deals resulted in a total value creation of $23 billion net of the acquisition expenditure.” Black commented “In absolute terms, the companies with the biggest acquisition spending, such as BP, Total and ExxonMobil have seen the largest value creation, much of it from the mega mergers that the industry has seen in recent years. Occidental is the top performer from the integrated and E&P company peer group, with BG, Talisman and Marathon also performing well.”
Marathon and Talisman have managed to achieve a rate of return of nearly 20% on their acquisition expenditure. Another four companies have made a return on their acquisition expenditure of around 14% nominal or better.
Nine companies flunked the WoodMac test, having acquired assets which are now worth less than their cost.
Most interestingly, the study found that, taking all the deals together, a rising oil price accounted for around $25 billion of value creation in NPV terms. In other words, without the impact of the oil price there would have been little or no value created from these deals in aggregate. The full study is available from www.woodmac.com.