With winter just around the corner and oil surging toward $100 a barrel, the energy sector has been on the minds of consumers as wells as dealmakers lately. A panel of dealmakers gathered Wednesday at The Deal's M&A Outlook 2008 conference at the Ritz-Carlton Hotel Battery Park in New York City to discuss the M&A opportunities in the sector. The general sentiment of the three panelists, Richard A. Vaccari
, vice president, mergers and acquisitions at Sempra Energy
; Douglas Korn, senior managing director and executive VP at Bear Stearns Merchant Banking; and Jamie Welch, head of global energy, investment banking division, at Credit Suisse Securities (USA) LLC
, is that the outlook for energy deals will remain bullish.
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The panel pointed to three issues that will push M&A energy activity:
- Big oil companies have found it difficult to find reserves, pushing these companies to look for deals;
- presidential elections in 2008 will refocus the energy sector to other sectors that have been neglected;
- and electrical utilities may have a hard time generating stronger profits because of regulation causing them to possibly also look for deals.
Energy dealmakers look overseas
As for where energy deals may happen, Welch feels strongly that Canada will be an area that will see consolidation. He pointed out that Canada has a better deal environment compared to some place like the U.S. That's not to say deals won't happen in the U.S.; energy deals in the U.S. will most likely be on the small to midmarket scale. The Key Span deal is a good example of a midsized energy deal in the U.S., according to Welch. “The U.S. market won't be a friendly market for foreign investors though," Welch said. Politicians have voiced strong opposition to energy deals involving foreign companies, citing national security reasons.
Where will the price of oil go?
The panel sees the price of oil remaining at historically high levels. Korn predicted $110 per barrel by next year, and Vaccari sees a lower $75. And with the current prices and the prediction of the same in the near term, Korn said that "there’s a lot of opportunity created.” — Gerald Magpily
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