Barrel of Oil for Sputtering M&A

NEW YORK (THE WALL STREET JOURNAL via Dow Jones Newswires), Jun. 10, 2009

Amid rising energy prices, the sector's dormant mergers-and-acquisition market is waking up. About $10 billion of announced and rumored transactions has surfaced this week. It is life, but not as we know it.

Two situations involve Iraq. London-listed Heritage Oil is merging with Turkey's Genel Energi to form the largest Kurdistan-focused exploration-and-production company.

Heritage is paying roughly $2.6 billion in stock, which has tripled in value since the start of the year. In return, it gets cash flow from Genel's producing fields and, with a pro forma market capitalization of more than $5 billion, according to RBC Capital Markets, a shot at joining the FTSE 100 index.

Meanwhile, several Chinese and Korean state-linked companies are said to be sniffing around Canada's Addax Petroleum, valued at C$6.7 billion ($6 billion) and active in Kurdistan and West Africa. The Chinese, in particular, want direct access to energy sources and enjoy support from a wealthy government.

The international oil majors are conspicuous by their absence. They have good reason to avoid Kurdistan, however. Foreign companies entering into deals there risk being blacklisted by Baghdad for bigger potential transactions elsewhere in the country.

The majors also are absent from a couple of recent deals in the U.S. unconventional natural-gas sector, the latest being Kohlberg Kravis Roberts's $350 million investment in closely held East Resources.

For the majors, such deals are too small to move the needle. Meanwhile, the run-up in commodities prices has taken financial pressure off some of the larger prey they might target. If anything, a little cooling off in energy markets might help kick off more deals.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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