The major oil companies may look at buying U.S. independents next year, according to Dan Pickering, managing director of Houston-based Pickering Energy Partners Inc.
"They're buying back stock, but that's no fun, since production growth is only a percentage or so," he told IPAA and Tipro members recently. "The majors that want to grow may come back and make acquisitions, but not until next year...If one did make a move to buy Devon Energy or EnCana Corp., it will spark a race for the rest."
There is still a lot of upstream M&A, in general, to be done, he added. "People are still out there buying. In 2003, a thousand cubic feet of (proved) gas (reserves) cost you $1. Today, you pay $2.75. There's been a dramatic increase in the value of E&P assets, but after a 20% price correction, small-, medium- and large-cap companies look cheap versus going out and buying properties."
Anadarko Petroleum Corp.'s acquisitions of Kerr-McGee Corp. and Western Gas Resources Inc. for more than $20 billion this summer "really opened our eyes."
As for natural gas prices, the "situation will get worse before it gets better," he added. "There are a lot of moving parts in the natural-gas equation. In spite of the pricing volatility, we won't have long-term problems. Barring a hurricane, we're going to see full storage and pretty soft pricing."
And, higher oil prices wouldn't be good for the industry, meanwhile. "$100 oil would be the worst thing that could happen to the business because people would just stop using it-not good for business sustainability."
His forecast for the availability of upstream services is optimistic. "Some relief is on the way. There will be 350 new rigs available by year-end 2007. Pressure-pumping power will also increase 25% and coiled tubing availability will grow 20%. Next year, rig availability should get better and capacity available will level off price increases."
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