?The combination of pent-up demand, opening of capital markets and a bullish outlook for gas prices will create an exciting deal flow in late 2009 and into 2010, driven by shale plays. This is according to Jefferies Randall & Dewey managing director Bill Marko, speaking at Hart Energy Publishing LP’s recent Developing Unconventional Gas conference held in Fort Worth

“You need optimistic buyers, people who believe in $6 to $7 as the prevailing price,” he said. “At $6 to $7, the shales work all day long, even without having cost reductions.”

Paired with pessimistic sellers, deal flow could ramp up even more. “Sellers can remain bears, but as long as there are some bullish buyers, deals will get done.”

At present, however, “plain vanilla A&D is not functioning.” The bid/ask gap will close and sellers and buyers will capitulate at about $55 for oil and $6 for gas, he predicted. When that happens, deal flow “will take off again.”

In the meantime, joint ventures will increase, more so than straight sales, as the gas-price outlook is not so good that sellers believe they can “sell at the top.” Instead, most companies now want to develop their holdings more to increase value before selling.

Jefferies is currently working on several such deals, he said.

“Drilling ventures are going to be what work best in the shales. They match people long on acreage and short on money with those that don’t have the access and maybe don’t even want to operate. And you’re sharing the risk: If prices are attractive you share in the reward. If not, you share in the pain. You’ve just got to marry someone you can get along with.”

Tom Gardner, director at Simmons & Co. International, is not as optimistic about gas prices. “Regardless of demand, 2009 is essentially a lost cause,” he said.

The massive gas glut that has flooded the marketplace, due in large part to prolific resource-play production, will require drastic measures to move through.

“The E&Ps are a victim of their own success,” he said, exacerbated by aggressive production growth combined with a massive decline in demand. “We were not surprised in October when the rig count began to decline after gas fell below $8.”

Gardner said the rig count would have to drop from its peak of 1,600 by 700 to 1,000, “depending on the severity of the recession. We’re not too hopeful for gas-on-gas competition and shut-ins for 2009.” (At press time, the U.S. gas rig count had dropped by about half.)

What to do? “Stay alive until 2010—2010 is looking good.”

Likewise, Bentek Energy president and chief executive Porter Bennett believes the gas glut will require more than dropped rigs and shut-in production to reverse the downward trend in gas prices.

“Performance in this industry has been absolutely remarkable. The problem is it’s been too good—we’ve got a lot of gas and demand is shrinking because of the recession,” he said. But even if demand was what it was last year, the industry still has a problem because of pipeline constraints.

“The shales are refocusing the structure of the gas markets in a lot of ways, and the pipeline system is just beginning to react to it.” More than 100 pipeline projects are currently under way. “Thanks to unconventionals, the U.S. is supply long and it’s going to be that way for quite a while.”

Pipeline constraints around the country are exacerbating the problem of supply buildup and lack of demand, making price implications more difficult. “A lot of producers think Rex coming out of the Rockies will help, but it won’t because it’s already full.

More than just reduced drilling, shut-in production will be necessary to get gas below the constraint level. “Prices will start to come up pretty quickly after that happens,” he said. “The problem is, once you start drilling and throw half a dozen good Haynes­ville wells into play, you’re back to being full. Demand is the most important part of the equation. Find a friend and tell them to burn gas.”

Jefferies & Co. managing director Subash Chandra, presenting in absentia, noted that over the past 12 months, shale and nonshale companies responded similarly to changing natural gas prices, where in the prior year only resource-play companies were highly sensitive to changing gas prices.

Even though both are tied to natural gas prices, shale-focused companies “tend to travel along a slightly more elevated path in the marketplace in terms of investor perceived value, but you need to be a gas-price bull to be involved in these shale names,” he said.

As an investor, “You should and need to have shale-gas exposure.”