There are two great clichés in the deal business. One is great assets and great companies always attract strong interest from buyers. Another is that the hardest time to buy is always now.

All that is as true in the oil patch as any other sector. But the problem with the current M&A environment in oil and gas is that there is more room than usual for buyers and sellers to disagree about their commodity price assumptions.

Supply problems, hurricanes and changing demand profiles make prices volatile.

"While the recent pullback in oil and gas prices has provided some much-needed relief to valuations, buyers are still worried that they will go lower," says Bill Montgomery, a managing director at Goldman, Sachs & Co. in Houston.

Once commodity prices find a floor, consolidation deals may be right around the corner, investment bankers say.

With oil prices having fallen from their highs of $147 per barrel in July to below $93 recently and natural gas prices slipping from $14 per thousand cubic feet in May to $7.19 recently, oil and gas assets are obviously cheaper, meaning there might be some bargains.

Oil companies are also under pressure to boost their reserves and spend their excess cash. But oil and gas haven't become easier to find, and it's even more expensive to get them out of the ground once they're found. There are no new "gushers" to report, except for a possible one off the coast of Brazil. Increasingly, nationalistic countries are becoming tougher negotiators -- or renegotiators -- of deals (witness BP plc's problems in Russia), and drillers are being kept out of environmentally sensitive areas around the world, such as the Arctic National Wildlife Refuge. Throw in uncertainty regarding the U.S. presidential election in November and the possibility of more offshore drilling, which could usher in higher taxes for oil and gas companies, and you might see some newly incentivized sellers.

"Deals have been tougher to get done, but the fundamentals haven't changed," says Laurence Whittemore III, a managing director at J.P. Morgan in New York. "If this current correction in commodity prices takes hold for a while, we could see in the next six to 12 months a lot of consolidation activity, from independent E&P [exploration and production] mergers all the way up to the majors."

Bob Gray Jr., a partner at Mayer Brown LLP in Houston, says high-premium-paying financial purchasers have mostly exited because of tight debt markets, so strategics may have better bargaining power.

"Oil companies' shares have all come down 20% in the last few months. Yet they need to meet expenditures and they need to grow, and it's easier to grow quicker through acquisition than organically," he says. "People are doing a lot of sniffing around. I see a lot of people talking, doing a dance."

Greg Pipkin, a managing director at Lehman Brothers Inc. in Houston, says most of the activity recently has been by private sellers unloading properties in the shale areas of the U.S., where natural gas is captured from rock by creating fractures around well bores. "There's an unprecedented amount of money being spent on acreage," he says.

One of the more recent shale deals is XTO Energy Inc.'s announcement in July that it had agreed to buy 12,900 net acres next to its operations in North Texas' Barnett Shale from an undisclosed party for $800 million. It also said it picked up 280,000 undeveloped acres in the shale areas of Marcellus in New York, Fayetteville in Arkansas, the Barnett and Haynesville in Louisiana, and other properties from various parties for $1.3 billion.

Dallas Parker, an attorney at Thompson & Knight LLP in Houston, says the demand for these properties has reached a fever pitch. "Valuations are getting pretty high on not very many wells drilled or proven," he says. "It's really exciting to a lot of people. But to a certain extent, it's speculative."

The excitement around shale actually started in the Barnett field several years ago and has gathered steam since. Last December, XTO bought properties there from Plains Exploration & Production Co. for $200 million. Fort Worth oil and gas explorer Range Resources Corp. also purchased assets there from a unit of utility DTE Energy Co. and an unnamed private company for $305 million. And in July, Quicksilver Resources Inc. announced it had agreed to buy assets in the area from Chief Resources LLC, Hillwood Oil & Gas LP and Collins & Young LLC for $1.31 billion.

Devon Energy Corp. is one of the biggest players in the Barnett Shale, and the majors, notably Exxon Mobil Corp., are long rumored to have courted it. With natural gas prices down and Devon's stock along with it, might Exxon Mobil make its move now?

Alan Gaines, a respected former investment banker who is founder and chairman of Dune Energy Inc., which has invested in properties in the Barnett, told a columnist recently that he's betting that Exxon Mobil, Royal Dutch Shell plc and ConocoPhillips Co. will buy companies that own shale properties. His top takeover targets: Devon, XTO, Range Resources, Chesapeake Energy Corp., Petrohawk Energy Corp. and EOG Resources Inc.

BP plc is already in. In early September, it announced it was buying one-quarter of a natural gas-producing venture in Arkansas' Fayetteville Shale from Chesapeake Energy for $1.9 billion. Despite analysts' praise of the sale, which will free up capital for development, Chesapeake's stock slipped. "[Chesapeake's] strategic steps fell on deaf ears," Houston energy investment bank Tudor, Pickering, Holt & Co. Securities Inc. wrote in a report.

One of the biggest worries by explorers and potential buyers is that if natural gas prices continue to fall, will shale projects become too expensive to operate?

"A lot of plays these companies are entering into require higher commodity prices," says Peter Gaw, president of Houston's CIT Energy, a unit of New York City-based CIT Group Inc. "We started getting a little concerned when we saw mid-$7 gas; over $6 gas is important."

Haynesville in Louisiana has become the latest hot spot for acquisition deals. In July Oklahoma City oil explorer Chesapeake agreed to sell 20% of its Haynesville leasehold to Houston rival Plains Exploration & Production for $1.65 billion in cash and $1.65 billion in future well costs. Pritchard Capital Partners LLC said the deal set a high-water mark for the value of the play. At the time, Chesapeake said it planned to continue acquiring leasehold in the area, in which Plains will have the right to 20%. Indeed, it did: A month later, it bought 13,000 acres of mineral rights in the area from Memphis paper and packaging provider International Paper Co. for $263 million.

Deals are also abundant in the Woodford Shale in southeastern Oklahoma. In July, BP agreed to buy 90,000 acres of natural gas properties there from Chesapeake for $1.7 billion, $200 million more than expected. The properties produce 50 million cubic feet of natural gas equivalent per day, but BP thinks it can double that.

An early but emerging play is the Marcellus Shale, which stretches from New York to West Virginia. Richmond, Va. Power producer and transporter Dominion Resources Inc. in July agreed to sell natural gas drilling rights on 205,000 acres there to private equity-backed Antero Resources Corp. of Denver for $552 million. Dominion will receive $325 million in after-tax proceeds but will keep a 7.5% royalty interest on gas production on the land. Antero's investors include the likes of Warburg Pincus LLC, Yorktown Partners LLC and Lehman Brothers Merchant Banking.

Chesapeake is also currently trying to sell a stake in its Marcellus assets to a partner, much as it did with its properties in the Haynesville, Fayetteville and Woodford shales.

Why is Chesapeake selling chunks of its potentially valuable properties? Its stock hasn't performed as well as other independent oil companies, and it's loath to go to the capital markets for more equity or debt, so instead it's selling pieces of its prospects so it can attract the capital it needs to fully exploit them.

"They just can't finance all these great opportunities," said one banking source who didn't want to be identified.

Oil services companies want to be in shale also: Houston wellsite support provider Stallion Oilfield Services Ltd. bought J-M Oil Co. on July 31, which will give it an entry into the Marcellus area.

The renewed interest in U.S. land drilling has kept oil services companies busy and looking for ways that they can expand their geographic footprint and services. "We're seeing a proliferation of oil service deals," Gaw says. "We'll continue to see consolidation."

The Bakken formation of Montana and North Dakota has also stirred up interest. In May, XTO agreed to buy properties there from privately held Headington Oil Co. of Dallas for $1.85 billion. XTO expects to double its production there over time. A month before, it bought Hunt Petroleum Corp. -- also private -- for $4 billion, which includes 15,000 net acres of leasehold in the Bakken area.

Also attracting interest is the Antrim Shale in Michigan, where developers have been buying up reserves. Natural gas transporter and processor DCP Midstream Partners LP said Sept. 11 it was acquiring privately held Michigan Pipeline & Processing LLC for $145 million plus $15 million in earnouts to diversify into the new region.

In the end, however, bankers think activity will move to independents buying other independents and independents selling to the big oil companies, which are optimistic about where commodity prices are going -- and yearning for growth.

"Notwithstanding recent price movements, clients are evaluating opportunities with as favorable a long-term commodity price outlook as we've seen in quite some time," says Jonathan Cox, a managing director at Deutsche Bank AG in New York. "This serves as a strong catalyst for high levels of activity going forward, particularly in light of the resources companies being so undervalued at present."