2007: A record year for oil mergers?

Spring is less than six weeks away, but love is in the air again in the nation’s oil and gas industry.

Fueled by last year’s record highs for crude oil, low interest rates and a sea of private equity money, 2006 brought 485 mergers in the energy patch, the most in 16 years – deals worth a cool $82 billion, the fourth highest over that span.

And with prices still at historically high levels, and lots of cash-chasing deals, the oil industry will keep cooking with mergers in 2007, analysts and investment bankers say.
“I think it will be a record year for acquisitions,” said Peter Gray, head of the energy division at KPMG Corporate Finance, the investment banking arm of consultant KPMG.

The big oil and gas companies, faced with aging fields and limited access to possibly rich new sources of oil in places such as Venezuela, Russia and Saudi Arabia, will eye smaller companies as a way to boost their oil and gas reserves.

Smaller firms that specialize in production or oil services will look for tie-ups to cut costs and boost production to bring more oil to market while prices are still relatively high. While crude has fallen more than 20 percent from last July’s record, prices are still hovering near $60 a barrel – up from $10 in the late 1990s.

“You’re going to need more rig crews, more drilling crews, more offshore people,” said Steve Blumreich, president of BKD Corporate Finance, a Springfield, Mo.-based firm that puts together mergers. ‘If you’re able to identify the companies [being taken over], you could make 10, 15 or 20 percent return in a short period of time.”

CNN