It was no time for small deals, as small-asset sellers shrank from the table in the third quarter while buyers, concerned with commodity prices, offered less for reserves than in the first half of this year. Of the 46 announced U.S. deals in the recent three-month period, six were worth more than $100 million and their aggregate worth was $7.2 billion, or 95% of total quarter announcements, according to Houston-based mergers, acquisitions and divestitures firm Randall & Dewey. "The third quarter continued the MA&D market dominance by the strategic buyers who take a longer-term view of natural gas supply and demand imbalances, anticipating the potential impact on product prices," the firm reports in its "Acquisitions Review," a quarterly report on the U.S. upstream oil and gas industry's asset-transaction market. The analysis excludes deals for non-U.S. reserves. Deal value was up, however. Announcements in the quarter totaled $7.6 billion. During the first half, 130 deals were announced, worth $11.1 billion. Buyers offered an average of $7.04 per barrel of oil equivalent for reserves in the quarter, compared with $7.57 in the first half. The average value in 2000 was $6.37 per BOE; in 1999, $7.49. "Current product-pricing volatility and uncertain near-term price outlooks for both oil and gas have kept many sellers on the sidelines. Additionally, the reluctance on the part of buyers to meet sellers' expectations has resulted in several transactions failing to close." Owners of small-size assets are waiting out the lower commodity prices. They entered the market a year ago as the Nymex price for gas exceeded $5 per million Btu and doubled in December. The price has declined since February to less than $3 recently. "Having missed that selling opportunity, the smaller asset-sellers' current seat on the sidelines is not unexpected." Among the bigger deals announced in the quarter, <$iDevon Energy Corp. > is buying <$iMitchell Energy & Development Corp. > for $3.5 billion and <$iDominion Resources Inc. > has purchased <$iLouis Dreyfus Natural Gas > for $2.4 billion. Activity may pick up during this and the next quarter, as asset rationalization begins among those who have been acquisitive in the past year. Devon says it will sell $1 billion in assets, although most of these will be outside North America. <$iBurlington Resources Inc. > will sell $500 million. <$iCMS Energy > sold its Equatorial Guinea assets to Marathon for about $1 billion, in a surprise deal. Other divestments will be rolled onto the market as pooling-of-interest tax-related prohibitions expire, usually a year after deal closing. "As pooling limitations from past megamergers expire, and the larger independents high-grade portfolios, we expect that both segments will increase their respective shares of seller-category activity." Companies with dry powder will appear at the table at the commodity-price bottom. Apache Corp. is the best known for resuming a seat on the buyer's side of the table, when it believes the market has gone soft. Randall & Dewey estimates more than $3 billion of assets will be divested in the next six months. "Without doubt, good quality assets with defined upside potential will continue to command market premiums while high operating-cost, lower-margin properties will have limited market appeal." Some other interesting facts about industry MA&D this past quarter are as follows, according to the firm: • Larger transactions were more costly on a per-BOE basis. The 26 transactions during the first nine months of 2001 greater than $100 million in value had an average implied reserve value of $7.42 per BOE, compared with $4.24 for smaller deals. • Reserves cost more when bought with stock, rather than cash. Stock deals had an average implied reserve value of $7.30 per BOE in the first nine months, compared with $6.01 for asset deals. • Non-pure-upstream companies are putting pressure on prices. Independent E&P companies were sellers in 86% ($16.3 billion) of deals and buyers in 48% ($9.2 billion), in the first nine months. Midstream and downstream firms were buyers 37% ($7 billion) of the time and sellers, 1% ($201 million). Integrated companies were buyers 5% ($960 million) of the time and sellers, 1% ($200 million). "With Williams, Calpine, Mirant and other downstream players active in or entering the MA&D marketplace, the [midstream/downstream] group will continue to bring strong acquisition competition to the independent segment."