LONDON With more than $110 billion of oil and gas assets on the block as companies big and small count the cost of the collapse in oil prices, it is now a question of who will blink first to set the M&A scramble in motion.
Energy groups with spare cash, venture capital funds and multinational and state oil companies are eyeing assets with valuations that have largely tracked the halving of the oil price to less than $50 a barrel since last June.
But with the exception of a few recent moves, including Repsol's $3 billion acquisition of Talisman Energy, buyers have largely stayed on the sidelines.
"Deals have just about dried up because you're catching a falling knife," said Simon Henry, chief financial officer at Royal Dutch Shell.
Though it hopes to sell assets worth $5 billion to $6 billion this year, Shell is not ruling out purchases of others that will increase its production base, Henry said.
Diverging views on when oil prices will recover leave plenty of potential for disagreement over the value of producing assets.
"If you end up paying at $50 (per barrel) plus a $30 premium and the oil price stays at $40 for three years you look a fool, or vice-versa," Henry said.
Strength in refining and trading and low debt mean Shell appears more able than some rivals to cover dividends from operating cash flow.
The entire industry is in the midst of spending cuts to ensure shareholders get their pay-outs. Those savings will take time to kick in but, even in the short term, bank borrowing will help avoid hasty sales of assets.
The waiting game will continue for a little while yet, says Rupert Newall, BMO Capital Markets' co-head of investment banking for Europe, the Middle East and Africa.
"We are going to need another three months of these prices before sellers will become more realistic about the price environment they are selling into today," Newall said.
But as companies become "more desperate", as Shell's Henry puts it, and the divergence between valuations narrows, mergers and acquisitions are expected to flow.
"That will be driven in large part by financing challenges where there is a lot of debt rollover," Henry said, adding that such pressure could be most keenly felt with smaller and medium-sized operations in North America but also some of the smaller European companies.
While private equity funds aim to buy distressed assets that they expect to flourish once the oil price stages its eventual recovery and majors look to expand production on the cheap, Asian national oil companies are expected to chase global capacity to secure supplies for their energy-hungry economies.
Potential buyers include Asian state-run companies such as Chinese oil champions CNPC, Sinopec and CNOOC, as well as Indian and Japanese companies.
Based on company filings and announcements compiled by oil and gas consultancy 1Derrick, assets worth about $112 billion dollars are being offered for sale.
Half of these are North American, mostly U.S. oil and gas shale fields such as Anadarko's Wyoming field and Reliance Industries' Eagle Ford assets, as well as ConocoPhillips' oil-sands operations in Canada.
Outside North America, Russian oil giant Rosneft is offering its non-core operations while Apache has mainly Egyptian assets for sale.
A total of 22 asset packages valued at about $16.6 billion were put up for sale in the fourth quarter of 2014, compared with 56 worth $41.1 billion in the previous nine months, says 1Derrick analyst Mangesh Hirve.
NORTH SEA PROFIT SQUEEZE
Similarly to Shell, BP is another oil major that has said it would consider acquisitions even as it sheds operations in higher-risk, higher-cost regions such as Nigeria and Iraq.
"The area where we believe there is going to be less interest is in the North Sea, which is a mature, high-costs oil province," HSBC said.
Top players in the North Sea, including Total, BG Group and ConocoPhillips, are all trying to sell assets in the region, 1Derrick says, and the chief executive of French group Total said at the World Economic Forum last week that the company would be investing less in mature fields to focus on assets with potential for higher returns.
A host of small operators could also try to sell North Sea assets as profit margins are increasingly squeezed.
"In the North Sea, we have a proliferation of relatively small companies; very few move the needle for fund managers," said Jon Fitzpatrick, head of Macquarie Capital's oil and gas team.
With so much on offer around the world, it looks unlikely that investors such as Carlyle International Energy Partners will jump the gun.
As its managing director Marcel Van Poecke said this month: "After a crash like this, there is clearly more upside than downside. This will be a great time to invest, but there is no need to rush into it."
(Additional reporting by Dmitry Zhdannikov; editing by David Goodman)