Mix together a foursome of factors, including lower energy commodities prices, high development costs at some of the nation's non-conventional oil and gas plays, squeezed credit markets, and a rash of geopolitical ills in other producing areas of the world, and you have the makings of increased oil and gas deal activities.
The result has been something of a shopping spree by the nation's bigger oil companies. For instance, BP
Beyond that, Royal Dutch Shell
As oil and gas prices slide, it becomes progressively more difficult for smaller companies to ante up the amounts necessary for development of, for example, unconventional gas plays. Those plays typically involve gas trapped in tightly packed sands, shale rocks, or coal beds and aren't cheap to develop.
At the same time, operating in politically precarious places like Nigeria, Venezuela, or Russia can be both operationally and financially challenging for the major oil companies. Not long ago, for instance, Shell announced that, because of tribal battling in Nigeria, a substantial amount of its production has been shut in and, as a result, its earnings will be affected. Shell, BP, and ExxonMobil
And then there's the credit crunch, which has made it difficult for small and medium-sized producers to get outside funding for their exploration and production plans. In contrast, Exxon had nearly $40 billion in cash on its balance sheet at the end of the last quarter, and the 2.8 billion of its shares the company holds are worth about another $215 billion.
So, for my money, all these factors point to an increase in oil and gas deals going forward, especially those involving Big Oil companies as purchasers. It's a scenario that should make the petroleum industry well worth Fools' attention for some time to come.
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