Recent deal activity between buyers and sellers of US oil and gas properties has been relatively low in both total transaction size and the number of packages being offered for sale, according to the latest OGJ Exchange pricing forecast poll for the second quarter.
First quarter deal flow was about $1.2 billion, while second quarter 2002 deal flow was about $2.1 billion, said OGJE CEO and Vice-Pres. Bill Marko. This compares with a 2001 total US deal flow of $20 billion, he said.
"Larger packages have continued to dominate the market, with more than 90% of the total sales from packages greater than $100 million," Marko noted. "This is creating a pent-up demand by acquisitive companies for packages in the $10-60 million range."
Marko said pent-up demand is driving prices higher and creating a bullish seller's market. "According to statistics from John S. Herold (Inc., Norwalk, Conn.), recent prices being paid continue at historical highs of $6.05/boe in the first quarter of 2002 and $6.30/boe in the second quarter. In the previous 3 years, this price has (been) $4-6.00/boe," he said.
Data room statistics
Statistics from recent OGJE data rooms also demonstrate the high demand for quality packages, Marko explained. "The high demand is reflected in number of data room attendees, number of bids, and prices paid, all of which are at historical highs," he said.
"For recent divestment offerings, OGJE has had 30-60 companies sign confidentiality agreements on a per project basis (indicating they are seriously considering a package), 20-35 companies physically attend the data room presentation, and 12-25 companies submit bids," Marko said. "Overall, two thirds of the companies that have attended recent data rooms have submitted bids.
"All of these statistics are 50-100% better than they were a couple of years ago in a much different selling environment."
He said, "This demand creates spirited competition, yielding the best possible price for the seller while supplying acquisitive companies with the new assets they clearly need to continue growing." These sales, Marko said, have been at or exceeded the US averages quoted above, generally ranging from $6/boe to more than $7/boe.
Near-term outlook
Marko said that, as the third quarter begins, there are signs that US deal flow is beginning to build. "The second half of the year is certainly expected to be much more active than the first half," he said. "Sellers that are early entrants in the second half market will find great demand for packages and therefore will receive attractive values. As the year progresses, it will be interesting to see the level of supply of properties and whether that will be large enough to dampen the seller's market."
Finally, Marko noted that in terms of future outlook of commodity pricing, there continues to be decent consensus for both oil and gas pricing among buyers, sellers, and energy banks, with little changing from the first quarter's pricing poll to this latest poll (OGJ, May 27, 2002, p. 33).
