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Discussion of Consolidation in the Industry
October 30, 2011
Independent oil and gas companies working on the development of the Marcellus Shale region have been victims of their own success to some degree. There seems to be a consensus among commentators that all the successful drilling activity in Appalachia, among other areas of the country, combined with relatively stable consumption of natural gas, has led to a prolonged trough in natural gas prices.

Although few believe that cheap gas is a permanent circumstance, independent producers with large inventories of shale acreage have nevertheless had some difficulty balancing the high costs of drilling and producing shale wells, with conservation of operating capital, in a market that currently views gas production as a low-return proposition.

What has made it difficult for independents to function has turned into an opportunity for deals for the cash-rich major oil and gas companies and foreign investors, who view shale assets as being undervalued by the market. In 2010, this consolidation trend yielded 1,717 M&A deals across the oil and gas industry, valued at $322 billion. This year, as of last week, there have been 1,508 M&A deals in the sector valued at around $210 billion, much of it driven by foreign interest in American oil and gas plays. According to a report published this week by PwC US, the prospect of good buys in the sector has driven up the value of oil and gas acquisitions in the third quarter of this year by 135% over the same period in 2010.

For further information about consolidation in the Marcellus Shale region, see:
Shale takes 80% of third-quarter upstream deals: PwC report
Foreign buyers lift U.S. energy sector
Banking & Finance Law Ronald W. Schuler