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While private equity activity moved to the sidelines during the first quarter of 2013 in terms of oil and gas mergers and acquisitions, deal activity was heavy among foreign buyers, who focused on the upstream sector, and strategic investors who searched for shale opportunities. That’s one of the conclusions of a new study from New York-based PwC’s quarterly report of announced U.S. oil and gas mergers and acquisitions. The PwC Oil & Gas M&A analysis uses transaction data from IHS Herold. The acceleration of deals at the end of last year to get ahead of the fiscal cliff and the seasonality of low first quarter deal volume resulted in a decline of oil and gas M&A activity in the first three months of 2013 compared with fourth quarter 2012, according to the study. While private equity (PE) activity moved to the sidelines, deal activity was propped up by foreign buyers, who focused on the upstream sector, and strategic investors who continued to look for opportunities in shale plays. These factors led to an increase in both deal volume and value compared to the same time period in 2012. “This is a trend we’ll see more of,” said Grant Switzer, a partner in PwC’s Dallas office. “When you look at how much capital is needed to develop these shale plays, you can see it’s likely to continue. Companies have tremendous acreage and to develop it, they’re going to need capital.” Foreign buyers announced nine deals in the first quarter of 2013, which contributed $4.1 billion or 15 percent of total deal value, versus six deals valued at $5.9 billion during the same period last year. On a sequential basis, the number of total deals remained the same as total deal value increased 28.1 percent. Private equity deal activity in the oil and gas industry dropped in the first quarter of 2013 with only two transactions with values greater than $50 million, which represented a total deal value of $576 million, compared to seven financial sponsor-backed deals worth $13.0 billion in the first quarter of 2012. For the three month period ending March 31, 2013, there were a total of 39 oil and gas deals with values greater than $50 million, accounting for $27.0 billion in deal value, an increase from the 34 deals worth $25.7 billion in the first quarter of 2012. However, on a sequential basis, deal volume in the first quarter of 2013 dropped 48 percent from the 75 deals in the fourth quarter of 2012, with total deal value in the first three months of the year declining 52 percent from $56.2 billion in the fourth quarter of 2012. There were 35 total asset transactions, representing 90 percent of total deal volume, which contributed $17.2 billion – a 30 percent increase in deal volume from the 27 asset transactions during the first quarter in 2012, but a slight decline from the $18.2 billion in total deal value during the same period last year. There were four corporate transactions totaling $9.8 billion in the first three months of 2013, a small dip from the seven corporate deals during the first quarter of 2012, although deal value had increased from $7.4 billion. For deals valued at over $50 million, upstream deals accounted for 23 transactions, representing $12.6 billion, or 47 percent of total first quarter deal value. The number of oil deals within the upstream sector totaled 11, compared to five upstream gas deals in the quarter. There were 11 midstream deals that contributed $10.0 billion, a 120 percent jump from the five midstream deals during the first quarter of 2012, which totaled $3.2 billion. Three downstream deals during the first quarter of 2013 added $3.9 billion, while oilfield services contributed two deals worth $465 million. According to PwC, there were 18 deals with values greater than $50 million related to shale plays in the first quarter of 2013, totaling $16.3 billion, or 60 percent of total deal value. In the upstream sector, shale deals represented 11 transactions and accounted for $5.0 billion, or 40 percent of total upstream deal value in the first quarter of 2013. Included in the shale-related deals in the first quarter of 2013 were three transactions involving the Marcellus Shale totaling $882 million and two Utica Shale deals that contributed $283 million. Compared to the first quarter of 2012, Marcellus Shale deal volume was flat, although total deal value decreased from $3.0 billion. Utica Shale deal activity increased from one transaction worth $112 million during the first three months of 2012. Switzer also noted that some companies that once had acreage in several shale plays have begun to consolidate and focus on one or two shale plays. In the Barnett Shale, deals involving acreage and production have slowed down, said Switzer. However, activity involving pipeline and infrastructure deals have been increasing, he said.