Capital is abundant and organic growth opportunities are limited, says Mark Deverka of investment-banking firm Petrie Parkman & Co. People, ideas and rigs are today's competitive advantages in North American E&P, he told a group of NAPE Expo attendees in Houston recently. And, competition for both proved reserves as well as these often-unevaluated assets is coming from unexpected places-overseas E&P companies, such as Norsk Hydro, Statoil and Japanese firms that have been active acquirers in the Gulf of Mexico, and super-majors that have a renewed interest in North American assets. For example, Royal Dutch Shell is interested today in unconventional resource plays such as in the Rockies, South Texas and the Barnett Shale of the Fort Worth Basin. "My view is not whether the other super-majors will follow but when," Deverka said. To be a successful buyer in the current seller's market requires a sophisticated technical team, focus on a development plan and cost structure, assigning value to nonproved acreage that holds upside ("You're going to need to value upside to be competitive"), bidding at or near strip, executive-office buy-in (data-room teams may take their "thumbs-up" deal to a "thumbs-down" CEO) and legal representation that is additive rather than argumentative. Which E&P companies are noteworthy successful acquirers? Chesapeake Energy Corp., XTO Energy Inc., Range Resources Corp., Whiting Petroleum Corp. and Apache Corp. So far, these aggressive buyers' strategies have paid off. Their market capitalization totals approximately $60 billion today, Deverka said; had they performed as their peer group has averaged since year-end 2002, their market cap would total $40 billion. Instead, the five firms acquired some $10 billion in assets in the two-year period, and added $20 billion in Wall Street favor by doing so. "Don't let price volatility thwart your deal enthusiasm. Savvy buyers are being rewarded in the market," Deverka said. During the past five years, Petrie Parkman has been involved in 34 asset- and private-company transactions totaling more than $8.5 billion in deal value, averaging some $250 million each and $1.84 per proved thousand cubic feet equivalent (Mcfe). Deverka expects North American upstream asset-transaction deal flow in 2006 to eclipse the nearly $25 billion of 2005 in 105 deals, up from as few as 28 deals totaling $3.5 billion in 2001. (The figures exclude corporate transactions, such as Chevron Corp.'s purchase of Unocal Inc.) The gross profit-margin potential in deals has improved dramatically as well, he added. It averaged $1.72 per Mcfe in 1996-the difference between the average price paid for proved North American reserves that year and a 70% gas/30% oil blended 12-month strip. In 2005, the margin averaged $6.78 per Mcfe. This meaningful margin goes to the buyer "even if you figure higher future development costs within the acquisition." Among asset transactions in which Petrie Parkman was involved in 2005, the average price paid per flowing Mcfe per day was $9,890, up from $3,330 just two years earlier. The average paid per proved Mcfe in 2005 was $2.24, up from as little as 98 cents in 2002. "The most recent transaction pushed $26,000 Mcfe per day," Deverka added. That particular package included substantial upside-growth potential. Indications are that purchase prices will be strong in 2006 too. Among deals in which the firm was involved in 2005, the average paid per proved Mcfe grew from $1.28 in the first quarter to more than $5 in the fourth. (For more on U.S. M&A activity, see "The U.S. Asset Portfolio" in this issue.)