It was almost a decade ago when the oil and gas industry saw the beginning of the mega-merger era with BP plc's acquisition of Amoco (see NGI, Aug. 24, 1998). That deal and the other consolidation plays that followed were triggered by low oil prices as the majors were striving to lower their costs.

At about the same time, the U.S. super-independents were embarking on a consolidation play of their own, this one driven by North American natural gas prices. Unlike the consolidation taking place among the majors, though, the independents kept on buying each other as gas prices climbed, observed Tristone Capital Managing Director David Marcell.

Marcell spoke at Hart Energy Publishing's A&D Strategies and Opportunities Conference in Dallas last week and wondered aloud about what opportunities lay ahead for U.S. major producers.

Marcell pointed out that little seems to be on offer for the majors. As it is, 37% of the world's reserves are owned by national oil companies (NOC); 13% of reserves aren't open to U.S. companies for political or other reasons; and 9% of world reserves are in Iraq, leaving the remaining 41% for production sharing and concessions.

While the United States offers opportunities that are politically safe, the majors are subject to the same shortage of industry people power that everyone else is, Marcell said. Additionally, domestic finding and development costs are high now; targets are smaller; the activities of major exploration and production companies are "under a microscope" in the U.S.; the regulatory environment is "difficult;" and asset valuations are high.

Shell Exploration & Production Co. is in the process of divesting its Barnett Shale holdings after failing to obtain critical mass in the red-hot play around Fort Worth, TX, Marcell noted (see NGI, July 2). And while ExxonMobil is sitting on $33 billion in cash, which would allow it to easily swallow a super-independent such as Anadarko Petroleum Corp., it hasn't done so. Marcell said that if ExxonMobil were going to take out a super-independent, it probably would have happened by now, but the idea is still a great source for industry rumors.

ConocoPhillips' gas-driven acquisition of Burlington Resources (see NGI, Dec. 19, 2005) probably kept one of the majors from buying up ConocoPhillips, Marcell said.

Marcell complimented Anadarko on its strategy, which has seen big acquisitions by the company followed by asset rationalization. Anadarko sold its Canadian operations and several properties across the United States to rebuild its balance sheet since its mega-purchase last year of Kerr-McGee Corp. and Western Gas Resources (see NGI, April 16; March 19; Jan. 22; June 26, 2006).

So far the strategy has worked for Anadarko despite execution risk and the chance that the company is keeping the wrong properties, Marcell said. So far, Anadarko has proven it can make the strategy work despite the former; whether it is keeping the right properties still remains to be seen, he said.

Marcell said to look for another trigger -- like the low prices of 1997 -- to set off another wave of activity among the majors. "They are well suited to sit back and wait," he said. "When that trigger happens the herd effect will go into effect and it's best not to be a mouse on the dance floor when those elephants are dancing."

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