Oil and gas companies have had a banner week.
First, Kinder Morgan announced its purchase of El Paso, making it the largest natural gas company in the US; then, Norwegian Statoilbought Texas-based Brigham Explorationfor $4.4 billion; and finally Anadarko Petroleum settled the landmark BP lawsuit for $4 billion.
While shareholders of oil giants may have cause to celebrate, smaller players, in the words of one private equity investor, "just got flanked." Mega-mergers have suddenly forced mid-sized players to reexamine their strategies.
Most are either scrambling to expand their market share, or are hoping to be the next M&A target. Either way, during a boom in US-produced shale gas, and the highest US oil production rate since 2003, the goal is to get in while the gettin's good.
Grabbing Market Share
"When you go from $40 to an $80 billion [dollar] market cap, all of a sudden the size of your projects increase. Now that Kinder Morgan has doubled in size, smaller projects will be left for the mid market companies," says Will VanLoh, CEO of Quantum Energy Partners, which provides private equity capital to the global energy industry.
The more than $25 billion in energy deals this week was driven by demand for domestic shale gas production, and the infrastructure needed to support it. This is one reason Kinder Morgan Energy Partners plans to spin off El Paso's oil and gas division, and focus on its natural gas pipeline and energy storage business.
"We love to focus on this deal, because they'll divest," adds VanLoh. "This acts as a food chain for mid-market companies to buy assets that fall off the table of these bigger mergers."