In a move very much consistent with its bullish logo, Merrill Lynch & Co. this fall announced a strategic stampede into the energy-finance arena with its agreement to acquire Petrie Parkman & Co.

Started in 1989 by former First Boston Corp. veterans Thomas A. Petrie and James Parkman, Petrie Parkman-with offices in Denver, Houston and London-has been for 17 years a leading investment-banking firm specializing in M&A, asset and private-company divestitures, corporate finance and equity research for the North American oil and gas industry, in particular for smaller-cap to midcap E&P companies.

Why this move? "Merrill saw our regional U.S. presence in the energy space-with a sellside focus on the property side of the business as well as a regional research presence-fitting well with and complementing its global strength with energy companies on the buyside, in terms of [M&A] transactions, and its broader public underwriting presence," explains Petrie.

Upon closing the merger sometime in this quarter, the current chief executive officer of Petrie Parkman will become a vice chairman of Merrill Lynch, remaining in Denver.

Petrie, whose firm before the announced Merrill Lynch transaction had already begun moving ahead with plans for an IPO-aimed at raising upwards of $115 million-says "we saw the Merrill offer [to be acquired] as a chance to be an integral part of that bulge-bracket firm's global platform in energy.

"Oil and gas, and energy in general, is clearly an international business, and many of the skill-sets we've applied here in the U.S. also have application elsewhere around the globe."

For Merrill Lynch, the move affords the worldwide market-maker and advisor to acquiring large-cap energy companies the opportunity to further expand its domestic M&A footprint and upstream research reach into the small- and midcap U.S. oil patch.

"This acquisition will create one of the strongest energy investment-banking teams on Wall Street by combining Merrill Lynch's world-class energy bankers with the specialized exploration and production expertise of Petrie Parkman," says Victor Nesi, head of Americas investment banking at Merrill Lynch. "We look forward to expanding our [energy] client coverage and bringing our enhanced capabilities to the market."

This year, Petrie Parkman was advisor to Denver's Western Gas Resources on its approximately $5.5-billion sale to Anadarko Petroleum. Earlier, it advised Chief Holdings, a private Dallas-based operator, on its aggregate $2.7-billion sale of Barnett Shale upstream and midstream assets to Devon Energy Corp. and Crosstex Energy LP, respectively.

A growing entity, the firm in 2005 had after-tax earnings, on a pro forma basis, of $17.3 million on revenues of $74.3 million. In just the first half of 2006 alone, it had pro forma earnings of $15.4 million on revenues of $62.2 million.

To again be part of a large, bulge-bracket house with strong global energy-financing capabilities has Petrie upbeat, in no small part due to his sector outlook.

"Energy is going to be one of the defining drivers of our economic outlook for the balance of this decade and well into the next," he says. "Basically, we're in a very tight balance between conventional oil and gas supplies and the global demand for those commodities. So having greater flexibility to help energy companies develop the financing sources and implement and execute the strategies they need to bring on new supplies-including M&A and commodity-price hedging-is what we want to be doing."

Petrie's take on the recent drop in commodity prices? "I'm not convinced this is a long-term trend, but rather the pause that refreshes."

He contends that the resource maturity of existing fields in North America and elsewhere, coupled with the demand growth of China, India and South America and the unrest in the Middle East, all argue in favor of energy remaining center stage.

Sanguine, therefore, about future commodity prices, the market-maker expects during the next few years to see oil prices trading in a range of $50 to $70 about 80% of the time while natural gas prices move in a band of $5 to $8-again 80% of the time.

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