Mergers and acquisitions continue to thrive in the energyindustry and will continue throughout the rest of the year,according to Merrill Lynch’s recently released Natural Gas WeeklyPerspective for the week ending March 16. The trend is highlightedby the industry’s most recent major deal, Enbridge’s purchase ofMidcoast Energy last week for $600 million (see Daily GPI, March19).

Increased activity along the “energy value chain” — from theupstream segment with greater values for reserves to midstreamservices and the downstream gas/power utility distribution segment— should drive a resurgence of mergers and acquisitions, MerrillLynch said.

“I think that when you look at the forces that are at work, arecipe if you will, it should bode well for M&A particularly inthe energy space,” said energy analyst Donato J. Eassey.”Competition is heating up, cost of capital is going down, P/Es arecheap relative to historical levels and most importantly, commodityprices are high. You have to find ways to cut cost, and a sure-fireway to do that is to combine entities.

“I think as rates come down, capital costs will decrease and[mergers] are going to look enticingly attractive, and you aregoing to see more of them,” he said. He listed National Fuel Gas,AGL Resources and Nicor as companies with particularly attractiveM&A value.

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