S&P expects robust oil, gas merger activity to continue

October 30 - Platts Commodity News - Merger and acquisition activity in the US oil and gas industry will continue to be robust, despite recent low commodity prices, Standard & Poor's Rating Services said.

The ratings company said the declining asset pool, "along with the incentive to maximize returns while markets remain strong, are additional industry drivers," in a report called "Ratings Roundup: For US oil and gas, M&A and softer prices could pressure sector ratings."

Oil and especially natural gas prices have decreased nearly 60% from the start of 2006, and "could pressure credit quality," S&P said.

"High-yield energy and production companies, which typically have high cost structures, limited liquidity, and are often weighted to natural gas, could be at risk if the trend is prolonged," it added.

The energy and production industry "appears solid," although not as active as many participants had planned at the beginning of 2006, said S&P's Paul Harvey. The result could be reduced spending in 2007, if commodity prices continue to show softness, he added.
But Harvey said that given the generally favorable industry outlook, solid forward pricing, and the desire for rapid growth, "robust M&A activity is likely to continue." In addition, acquisitions will remain a key growth engine for the remainder of 2006, and possibly into 2007, he said.