The U.S. acquisitions and divestitures (A&D) market was in fine form in first-half 2014, with strong signs it has recovered from a down-and-dirty 2013. Comparing first half to first half, deal values skyrocketed 82% over 2013. To put that in perspective, this year’s first half saw $31 billion of onshore deal flow compared to just under $17 billion for the year-ago period.

Oil and liquids retained their pull on deal makers, but natural gas accomplished a solid return. Pure-play gas assets accounted for five of the top 20 deals in first-half 2014, with a combined value of $7 billion.

Larger deals have been more prevalent so far in 2014. In fourth-quarter 2013, the busiest of the year, just two deals eclipsed the billion-dollar mark. In the second quarter of this year alone seven deals were valued at $1 billion or more.

“The markets are very strong on almost every front,” said Sylvia Barnes, managing director and head of KeyBanc Capital Markets Oil & Gas Group. “I don’t think oil and gas investment bankers have ever been busier, or at least not since 2006 to 2007, given continued robust high-yield investor appetite and renewed IPO activity.

“With interest rates remaining low and reasonable although selective equity inflows, we are experiencing a rebound in transaction activity.”

Buying and selling was most active in the Gulf Coast and South Texas asset arenas, with 10 deals valued at $5.2 billion. The Permian Basin posted 10 deals worth $4.35 billion, followed closely by the Rockies with nine deals worth $4.25 billion, according to a report by Chris Simon, managing director and co-head of acquisitions and divestitures for Raymond James. Notable deals included Encana’s (NYSE: ECA, TO: ECA.TO) $3.1 billion payout to pry loose Eagle Ford acreage from Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX). Within 24 hours, Freeport had bought Apache Corp.’s (NYSE: APA) deepwater nonoperated Gulf of Mexico interests for $1.4 billion.

Aubrey McClendon’s American Energy Partners LP was also a powerful, seemingly ubiquitous buyer. At one point McClendon bought $2.5 billion of Permian assets and $1.75 billion of Marcellus and Utica holdings on the same day.

Oil and gas institution Forest Oil Corp. (NYSE: FST), nearly 100 years old, did one last deal as it saw its legacy tucked inside Sabine Oil & Gas LLC in a $1.1 billion merger.

Bakken activity crawled. None of the top 20 first-half deals involved Bakken assets. However, a $6 billion merger between Whiting Petroleum Corp. (NYSE: WLL) and Kodiak Oil & Gas Corp. (NYSE: KOG), announced in the third quarter, will make the company the top producer in the play.

Barnes said she anticipates more corporate deals on the horizon. For all the swelling prices, however, she doesn’t subscribe to the theory that high-dollar deals hint at a bubble in the market. “I feel we’re in for a continued run of positive activity,” Barnes said.

The money is, so far, staying put. Liquid capital continues to bankroll acquisitions and resource play development, said Craig Lande, managing director, RBC Richardson Barr.

Lande said companies are still in a “shrink to grow” phase in which they are becoming more focused on capital efficiency and drilling their core. “If you have a position in the Midland Basin or the Eagle Ford, the amount of capital to develop those assets is massive,” he said.

To compensate, public companies continue to divest conventional assets and noncore positions in an effort to fund cash-flow deficits as they focus on their “franchise” resource plays. Public companies comprised 50% of total asset supply, compared to 38% in 2013.

Lande said the market--purely A&D, not mergers--seems headed full-steam back to the $55 billion to $60 billion levels experienced annually from 2010 through 2012, vs. the relatively slow performance of 2013. “I think we’re clearly, barring any dramatic drop in the price of oil, on our way to a $60 billion year again, if not greater,” he said. “It seems like it could be the biggest A&D year in history.”

Gas back in style?

For months, A&D activity has been dominated by heavy-hitting deals in the Permian Basin and Eagle Ford. But while oil still holds strong appeal, the comeback story in first-half 2014 was gas transactions, which were highlighted by multibillion-dollar deals.

The Utica and Marcellus pure-plays led the way, but in Wyoming and the Rockies, gas was also back on tap.

In late June, Linn Energy LLC (NASDAQ: LINE) acquired 900,000 net acres from Devon Energy Corp. (NYSE: DVN) in the Rockies, Midcontinent, East Texas, North Louisiana and South Texas for $2.3 billion. Devon’s production from the assets is 275 million cubic feet equivalent per day (MMcfe/d) of gas , of which about 80% is natural gas.

Elsewhere in gassy regions, American Energy Partners spent $1.75 billion on a Marcellus/Utica deal, TPG Capital bought Encana’s Jonah Field in Wyoming for $1.8 billion and Occidental Petroleum Corp. (NYSE: OXY) sold its Hugoton assets to Merit Energy Co. for $1.4 billion.

Lande said buyers and sellers likely did equally well, despite the relative cheapness of gas and their attractiveness to MLPs.

“The multiples in the A&D market are quite high for conventional gas assets, especially if an MLP is involved as a buyer,” Lande said. MLPs have low costs to access capital and continually need to acquire in order to meet their distributions.

Devon’s assets, for instance, were in a strong competitive market given the price paid by Linn, an MLP. “Valuations have to be strong for you to take those assets from Devon, even though they’re noncore to Devon. They’re definitely core to someone like Linn. Those are very sought-after assets because a lot of them are very MLP-friendly,” Lande said.

Jon McCarter, Ernst & Young’s (EY’s) Americas Oil & Gas Transactions leader, said some gas purchases have been due to consolidation and also to buyers betting on natural gas.

“I do think people think it’s a good time to buy natural gas given the pricing,” he said. “Obviously everyone’s trying to go oily or liquids at the moment because of the price differential. There are definitely a number of people who have a strategy of ‘well, now might be the time to buy gas.’”

For instance, private-equity firm Kayne Anderson Energy Funds has dedicated a fund to dry-gas investments. The fund is being launched to take advantage of historically low natural gas prices, which “we believe offer investors an opportunity to earn attractive risk-adjusted returns with limited downside risk, current cash flow and upside optionality if commodity prices appreciate,” the firm said.

The shifting focus on operators’ core areas are also factored into activity.

“It’s a big, capital-intensive industry,” McCarter said. “What we’ve defined at core, how are you going to fund that? Well let’s get rid of these noncore assets.”

The influence of McClendon’s American Energy Partners has also been felt.

Various iterations of McClendon’s companies dramatically impacted the A&D market, with the company spending $6.2 billion in the first half, or 20% of all deals greater than $20 million, Lande said. In addition to purchasing oil production from the Permian’s Enduring Resources for $2.5 billion, American Energy Partners bought billions in gas assets in the Utica and Marcellus.

“Aubrey raised more than $13 billion of committed capital and his strategy is to selectively focus on different basins with separate and distinct operating teams and companies,” Barnes said.

She noted the hedge potential on natural gas is relatively useful and more executable than it has been in the past or than it currently is for crude oil. That can allow acquirers to lock in financing and be more aggressive.

“Money is waiting to be deployed. The rapidness of Aubrey’s ability to raise committed capital over $13 billion speaks to the liquid nature and vigor of the market,” she said.

Window-shopper’s remorse

While transaction values were high in the first half of the year, McCarter sees a “sideways market, not a stellar market.”

Among many companies, capital discipline is rigid, and digesting already acquired assets remains important--even with cash on balance sheets or private-equity money at the ready.

McCarter said what bodes well for deal activity is confidence among high-level executives and in boardrooms.

“They’re still looking at a lot of deals,” he said. However, “there’s more looking than people pulling the trigger right now.”

McCarter said transactions also need to make an impact on companies. In certain areas mergers will make sense moving into the second half of 2014, but likely just a flurry will materialize, rather than an avalanche.

“Even some of the bigger players have told me they’re looking at the smaller deals, probably $1 billion to $5 billion. That’s where they’re seeing more value,” he said.

While the money is flowing, Barnes notes that a great deal of private capital still remains on the sidelines, eager to find the right opportunities. Barnes is seeing a higher degree of confidence, demonstrated by relatively high acreage prices.

In the fourth quarter of 2013, the dollar-per acre price was $5,825. The first quarter of 2014 rose to $8,454, and the second quarter topped out at $9,308. “I think buyers are settling into their framework of what the forward curves look like. And they are accepting of a higher shift in gas prices,” she said.

While 2013’s prudence will be hard to shake off, private equity has been incredibly aggressive on the buy side, Lande said. Sponsors and management teams continue to be opportunistic sellers as demand for core resource play positions takes values to a premium.

So far, private equity has comprised 29% of total asset supply, with 78% in oil resource plays.

Record amounts of capital have been focused on U.S. exploration and production, Lande said. That sector raised about $12.5 billion through high-yield markets, $4.8 billion through follow-on equity offerings and $4.6 billion through IPOs during first-half 2014.

Lande said about $80 billion in private-equity capital is available.

For all of that, buyers aren’t going to be interested in assets that are not de-risked.

“Those type of assets either trade at a severe discount, or don’t trade at all,” he said.