Oil and gas prices have softened in the past 12 months, but asset prices have had no fear. In most U.S. regions, the metrics asset buyers will write checks upon have grown, instead, as new commodity-price floors are receiving general market acceptance.

M&A advisory and investment-banking firm Scotia Waterous reports that 12-month weighted average prices paid per proved thousand cubic feet equivalent (Mcfe) have continued to increase in the Rockies, Permian Basin, South Texas and ArkLaTex.

Prices have held mostly flat in the Gulf of Mexico, which fetched $3.11 per proved Mcfe in the fourth quarter-the highest-cost region in the U.S. and possibly worldwide a second straight year.

Meanwhile, asset-price softening has occurred on the Gulf Coast and in the Midcontinent and Appalachia, according to Scotia Waterous.

Deal metrics continue to grow across the globe, according to independent energy-research firm John S. Herold Inc. and M&A advisor Harrison Lovegrove & Co. M&A activity rose in 2006, a third consecutive year, totaling $166 billion worth of transactions.

Prices for proved oil and gas reserves grew to $12.86 per barrel of oil equivalent (BOE). Average prices paid for proved-plus-probable reserves tripled to $5.51, the firms report in their "2007 Global Upstream M&A Review."

Across North America, excluding deals for heavy-oil or oil-sands assets, buyers paid an average $18.17 per proved BOE, up from $15.07 in 2005. When including the two asset types, the average was $18.89 in 2006, up from $15.01.

Outside North America, the average price was $12.02, excluding deals for assets in the former Soviet Union, up from $7.27; if including those assets, then $8.94, up from $5.90.

The firms expect consolidation to continue to weigh heavily on the global upstream industry. "Stronger companies, frustrated by the lack of growth opportunities in the asset market, will likely return to corporate acquisitions, including hostile bids, as falling margins impact the share prices of their weaker peers."

Mid- and small-cap independents are likely targets. "While the potential for consolidation exists in all segments of the industry, we anticipate the sub-$10-billion segment will be particularly active, with larger companies opportunistically acquiring smaller players that have a good strategic fit, or like-minded smaller players executing defensive mergers to squeeze out costs and achieve scale."

Natural gas will play a key role in deal-making too. Four of the top five transactions of 2006 were predominantly gas-weighted: Statoil/Norsk Hydro, Anadarko/Kerr-McGee, Gazprom/Sakhalin II and Anadarko/Western Gas Resources.

Also, national oil companies (NOCs) were active in 2006, and will continue to be. "We expect NOC activity to remain strong in 2007, further eroding the number of opportunities that are open to the independent oil companies."

But it was a U.S. independent in 2006 that made the biggest impact on global M&A statistics, the firms report. Anadarko's 2006 acquisitions and divestments, which totaled some $33 billion, represented 20% of global deal value in 2006 and pushed worldwide average prices paid for proved reserves up by nearly $1 per BOE.

The deals were 25% of U.S. transaction value in 2006, and 12% of U.S. proved reserves volume. Also, the transactions pushed U.S. deal weighting to nearly 70% gas from 65%.



12-Month Weighted Average Prices/Proved Mcfe4Q 20041Q 20052Q 20053Q 20054Q 20051Q 20062Q 20063Q 20064Q 2006Rockies$1.24 $1.28 $1.30 $1.41 $1.43 $1.42 $1.32 $1.41$1.57Permian Basin$1.24 $1.26 $1.31 $1.55 $1.24 $1.49 $1.54$1.71$2.31South Texas$1.44 $1.53 $1.75 $1.81 $1.93 $1.99 $1.99$2.08$3.03Gulf of Mexico$1.57 $1.73 $1.87 $2.06 $2.66 $2.95 $3.37$3.14 $3.11Gulf Coast$1.50 $1.56 $1.67 $1.70 $1.89 $1.85 $1.94$2.84$2.52ArkLaTex$1.30 $1.38 $1.67 $2.04 $2.33 $2.44 $2.69$2.51$2.64Midcontinent$1.38 $1.38 $1.45 $1.44 $1.53 $1.55 $1.50$1.85$1.51Appalachia$1.10 $1.06 $1.15 $1.38 $1.65 $1.64 $2.00$1.90$1.56Source: Scotia Waterous

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