?M&A activity in the U.S. across all sectors of the energy industry will either increase or hold steady through 2008, according to 87% of energy executives surveyed by energy law firm Fulbright & Jaworski LLP.


The survey includes responses from 100 energy-sector senior executives from U.S. and national oil companies (NOCs) across upstream, downstream, midstream and alternative energy.


“The global energy-sector M&A trends have been relatively strong in recent times,” the firm reports. “Deal volume has steadily risen over the last three years, increasing from 732 transactions in 2005 to 950 announced deals in 2007. Given the size of the energy sector in the U.S. and Canada, it is not surprising that North America has witnessed the largest share of M&A in both volume and value terms.”

?As for total U.S. energy-sector transactions for the year, respondents were “moderately bullish,” with 41% expecting the level of deal-making to increase and an additional 4% predicting a significant increase.


According to one survey participant, many companies are seeking M&A opportunities “while commodity prices are still strong and companies have good access to capital and funding.”


Another 42% believe U.S. M&A will at least continue at current levels, which, when combined with Canada, accounted for 50% of global M&A in the previous year in terms of deal value, and 43% in terms of number of transactions.


Says one U.S. respondent, “Last year, a fair amount of activity was going on and I don’t see much more happening, but I also don’t think it’s going to taper off. I don’t see a driver out there that will dramatically change M&A activity.”


Some 13% expect M&A activity to decline this year.


Deal sizes greater than $1 billion will dominate the U.S. M&A scene in 2008, some 40% estimate; 11% of 2007 deals exceeded $1 billion. Another 23% believe most deals will be between $500 million and $1 billion.


“It is noteworthy that 63% of survey respondents expect deals over $500 million to offer the most M&A opportunities in the U.S. in 2008, even though this space accounted for only 19% of overall global deal flow in 2007,” the firm reports.


“Today, anything less than $1 billion is a small company,” says a survey participant. “There could be a lot of small M&A deals, but they are irrelevant and immaterial for the market as a whole. The deals that matter are going to be greater than $1 billion.”


The E&P sector will experience the greatest volume of M&A in 2008, predicts 25% of the respondents; 16% cite power generation; 16%, oilfield services; 15%, renewable energy; 8%, midstream; 6%, refineries; and less than 3% each, nuclear power, gas-processing plants, liquefied natural gas (LNG) facilities and petrochemical plants.


“A significant proportion of respondents expect a dramatic upswing in financial-buyer activity in the near future,” the firm adds. Some 41% predict private-equity-funded companies to account for more than 20% of overall energy M&A this year, compared with 7% in 2005. In contrast, about as many survey respondents, meanwhile, believe private-equity-funded companies will be involved in less than 20% of total energy deal flow.


The buyer-seller expectation gap will be the biggest challenge to M&A, according to nearly half of respondents. “Smaller players especially have excessively opti?mistic expectations of sale prices,” says one participant. Global energy prices were cited as an obstacle by fewer than 10%.


Meanwhile, only 14% of U.S. respondents would consider acquiring foreign assets. NOCs would more readily consider foreign M&A targets, with 53% of participants representing these companies being receptive. More than half of each group considers dealing with foreign governments to be difficult.


“It appears NOC respondents are more receptive to conducting crossborder M&A despite the fact that the associated pitfalls are relatively apparent and well recognized,” the firm reports. “These results perhaps suggest that an abundance of energy targets in the U.S. makes crossborder M&A activity for domestic companies less crucial, especially when potential difficulties arise with foreign governments.”