M&A activity expected to rise in 2010

Energy M&A Update is a new monthly feature in OGFJ, brought to you in collaboration with The Rodman Energy Group. The tables include relevant information about oil and gas industry transactions in the United States and globally.

In his Analyze This column on page 10 of this issue, Jason Reimbold suggests that the ExxonMobil-XTO deal may be a precursor to a surge in M&A activity in 2010. He is not alone in that analysis; others are also forecasting an increase in M&A transactions in the new year, although it may be hard to top the estimated $41 billion XTO deal.

Jon McCarter, transactions leader for Ernst & Young's O&G Center, forecasts that energy M&A will accelerate in 2010, while adding that it is "unlikely" that deal volumes and values will return to the levels of 2006-2007 and the first half of 2008 in the near term.

While 2009 deal volumes were down considerably compared to 2008, with 1,916 energy and power deals completed in 2009 versus 2,351 in 2008, there are clear signs that a new wave of oil and gas transactions is emerging, says McCarter. E&Y believes new M&A transactions will be much less debt reliant and will include IPOs and equity raisings. At this point, potential buyers are concerned about missing compelling opportunities on the upside, says McCarter.

Allen Brooks, managing director of investment bank Parks Paton Hoepfl & Brown, says the global oil and gas industry has embraced the view of Fed Chairman Ben Bernanke that the recession is "very likely over." Brooks says the early recovery in global oil prices in 2009 helped company cash flows, which in turn supported a "solid level of spending" by oil and gas companies. He says many analysts look at this and their outlook is "extremely bullish for the industry."

In his conference call with investors following the XTO announcement, ExxonMobil CEO Rex Tillerson said he believes there will be significant demand for natural gas in the future. This outlook is widely shared and bodes well for the M&A marketplace.

Click here to download the pdf of the Rodman & Renshaw - Energy M&A Update

More Oil & Gas Financial Journal Current Issue Articles
More Oil & Gas Financial Journal Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com