Saturday, July 19, 2008

WSJ: More Big Deals Ahead?

Friday's Wall Street Journal published an interesting article reflecting on the deal between BP and Chesapeake in Oklahoma. While the article discussed the deal, the real point was that the oil and gas majors are way behind in domestic onshore production because of their focus in recent years on foreign opportunities. They are buying their way into unconventional plays, such as the Haynesville Shale, and are paying up since they are the last to arrive at the party. The article also cited Shell's deal with EnCana to develop the Haynesville Shale as well as Conoco's deal to buy Burlington Resources a few years ago.

Bottom line: many people (myself included) expect to see more big deals as the majors seek the stability of North America over the tumult of foreign nations. Smaller producers such as Chesapeake have developed expertise in drilling in unconventional plays, so the bigs ultimately might end up functioning as investors rather than producers. That would be an interesting change of course.

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