There will be fewer megamergers among 2000's oil and gas transactions than in 1998 and 1999. But a leading acquisition and divestiture firm expects property rationalizations to accelerate, creating opportunities for the well-capitalized independent. David L. Bole, vice president of corporate research and development for Houston-based Randall & Dewey Inc., sees an outlook that he describes as "a unique combination of opportunity and strong prices." "We see a lot of benefits for those companies with dry powder," he told the Houston Energy Finance Group recently. "You might say it's a period of limited competition as many smaller companies are still sorting out their balance sheets...It's very tempting to say that this is going to be a golden era for well-capitalized independents during the next one to three years." A key for companies seeking to participate as buyers in the anticipated A&D arena will be their financial situations and their resulting access to capital. "Top-performing independents will be able to attract capital, but as capital providers are weary of the industry's poor returns on investment, the performance laggards without access to capital could well become acquisition targets," Bole said. He expects property divestitures stemming from recent mergers, at levels not seen since the mid-1980s, to restock the asset food chain and result in increased transactions. "If each merged company divests 10% of its E&P assets, the total would be significantly more than $25 billion," Bole said. That amount, on top of the normal number of oil and gas acquisitions and divestitures, would be enough to create 25 to 30 new independents, he added. He was referring to the larger mergers, including Exxon Mobil Corp., BP Amoco Plc and Atlantic Richfield Co., Total Fina SA with Elf Aquitaine SA, Repsol and YPF, Kerr-McGee Corp. and Oryx Energy Co., Devon Energy Corp. and Northstar Energy Corp. and PennzEnergy Co.; Marathon Oil Co. and Tarragon Oil & Gas Ltd., and Burlington Resources Inc. and Poco Petroleums Ltd. Reviewing the 1999 merger, acquisition and divestitures market, Bole said the market was split. High-impact mergers, paid with stock, brought an average price of $8.30 per barrel of oil equivalent for proved reserves while property deals brought an average of $5.24 per equivalent barrel. "High-impact merger transactions with 'going concern' premiums dominated the market in the late 1990s," Bole said, referring to statistics from the Randall & Dewey Transaction Database. He noted that the average price for 30 stock deals from 1990 to 1996 was $5.24 per equivalent barrel, while 50 stock deals in 1997 averaged $7.11 per equivalent barrel and 1998 brought 35 stock deals with an average price of $10.94 per equivalent barrel. Meanwhile for asset transactions, the average price for 423 deals between 1990 and 1996 was $4.40 per equivalent barrel, while 394 asset deals in 1997 brought an average price of $6.06 per equivalent barrel and 1998 saw 319 asset deals for an average price of $4.54 per equivalent barrel. For 1999, Randall and Dewey reported all domestic upstream announcements totaled $47.3 billion in 326 transactions, with 21 deals greater than $100 million in size accounting for 93% of the volume. Bole noted the total deal volume masked a relatively low level of asset deals; 1999 saw the lowest level of asset transactions since 1996. -Paula Dittrick