DEALTALK-Energy M&A looks up with asset sales rising
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* Deals for oil and gas assets expected to rise in 2010
* Well-capitalized companies will buy as others pare back
By Michael Erman
NEW YORK, Dec 3 (Reuters) - Deals for oil and gas assets are expected to pick up in 2010 as two large energy asset sales have already been announced with more expected to come to light in the near future.
Dealmakers said they expect companies to continue to sell off assets so they can focus their capital spending on the areas where they can reap the highest returns.
"You're going to see a robust M&A market," said a leading energy investment banker. "I think you're looking at an environment where you're not going to have a lot of economic growth. You're not necessarily going to have a lot of commodity price growth. Companies are going to be struggling for ways to find growth."
ConocoPhillips (COP.N) said in October that it plans to raise $10 billion from asset sales over the next two years in order to cut its debt. These assets could include the company's minority stake in Syncrude Canada, an oil sands mining venture, and some of its U.S. natural gas assets.
Independent oil and gas company Devon Energy (DVN.N) said last month it plans to sell its Gulf of Mexico and international oil and gas assets.
The company is looking to pare back those assets and spend the $4.5 billion to $7.5 billion in proceeds to focus on its onshore U.S. portfolio.
"As the E&P companies look down the horizon and can see that maybe we're coming out of the tunnel ... they can start planning for that," said Marc Folladori, a partner in law firm Mayer Brown's global energy practice.
"The way they'll best plan for that -- because a lot of them have had layoffs and cutbacks -- is that they'll start to concentrate on their core areas. Those assets that aren't core, they'll start to sell off. And another E&P company may say, 'Well, that area is core to me -- let me add it.'"
Private equity-owned oil and gas companies may also be on the market, said Bobby Tudor, chief executive of energy investment bank Tudor Pickering Holt & Co.
THE HAVES AND THE HAVE-NOTS
Bankers said that large, well-capitalized oil companies including Exxon Mobil Corp (XOM.N), Statoil (STL.OL) and Occidental Petroleum (OXY.N) should be buyers and would have more access to financing in 2010 than they have had this year.
Oil prices fell below $33 a barrel in early 2009 after surging as high as $140 a barrel the previous summer. But oil prices have recovered and have been trading at around $70 a barrel since June.
The improved prices have given the better-capitalized companies renewed confidence, so these companies will be more comfortable looking to grow their resource bases after spending much of 2009 cutting their costs and capital budgets.
Ian Fay, a partner at boutique investment bank Odin Advisors, said that some of that conservatism may stretch into the beginning of 2010, but noted that oil companies are already "re-evaluating their budgets for next year with one eye on the depletion. They've got to replace those reserves."
China's state-owned companies have been looking to deploy the country's cash in order to lock up access to commodities around the world. Bankers expect this to continue in 2010, and see other Asian companies getting in on the act.
Indeed, South Korea's Korea National Oil Corp agreed to buy Canada's Harvest Energy Trust HTE_u.TO for $1.7 billion in October, and said it was looking at other deals around the world. (For more M&A news and our DealZone blog, go to www.reuters.com/deals) (Additional reporting by Anna Driver in Houston; editing by Patrick Fitzgibbons and Matthew Lewis) ((email@example.com; + 1 646 223 6021; Reuters Messaging: firstname.lastname@example.org))
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