HOUSTON — A cache of assets is ready to drop into an opportunity-rich market, with distressed exploration and production (E&P) companies begrudgingly selling oil properties and countercyclical buyers ready to pay cheaply.

William Marko, managing director, Jefferies LLC, said in September that the industry seemed to be running at full speed.

He noted that rig count was at or near a peak of 1,900. Oil was trading for more than $90 and companies were running fast, focused on efficiency.

Marko said he felt that the industry was heading for a bubble.

“We knew it was coming, just not how and when it was coming,” he said Jan. 7 at a meeting of the Independent Petroleum Association of America and Texas Independent Producers & Royalty Owners Association.

Now the bubble has disintegrated. Oil hunters are prowling the landscape looking for acquisition prey.

“Big private equity is already licking their chops ready to go out in front,” Marko said, noting that firms in New York have raised billions of dollars to find opportunities.

The price drop was disastrous for acquisitions and divestitures (A&D) at the end of 2014. After three quarters of brisk activity and huge values, the fourth quarter saw a monster drop in deals. October saw $13.2 billion in deal value while November sank to $1.8 billion and December $1.4 billion. Historically, the fourth quarter is more robust.

“Obviously, nobody can do deals in this environment,” Marko said. “You can’t even think straight.”

The time could now be right for majors to merge or take over companies. Historically, mergers get done in low price environments, Marko said.

“The majors have tons of cash,” he said. “But their focus is on how can I better develop the shale I already own?”

They have to find a way to compete with the likes of EOG Resources Inc. (NYSE: EOG), Encana Corp. (NYSE: ECA, TO: ECA) and ConocoPhillips (NYSE: COP).

Even international companies are interested in returning to the U.S. to find bargains, though they will find the competition fierce, Marko said.

For sellers, cash-strapped companies near bankruptcy might need to discard oil properties at the bottom. The buyers will need to be disciplined to most effectively screen and evaluate deals.

“I think the phone will be ringing for lot of people,” Marko said. “If you don’t know your strategy, strengths and weaknesses, I think you’ll get balled up with too much to do.”

Fat Wildcats

Oil prices have hurtled downward more than 50% since June and the bumpy ride will only continue.

“This environment is going to last a long time. We’re now in a big experiment to see how much rig count gets cut,” he said.

Permit data show a 35% decline.

In an industry that overspends routinely, most companies will have to live within available cash flows, reducing large capital programs and facing investor pressure to manage big portfolios.

In the near term, Marko said the industry will live with a $60 to $70 per barrel (bbl) oil price, with near term meaning sometime this year. Hopefully the price rises to $70 to $80/bbl long-term, he said.

Marko said that so far the market has overreacted to the oil price.

“But that’s just our business,” he said. “Everybody runs to one side of the boat in a herd, and then everybody runs to the other side of the boat in a herd.”

Marko said predictions discount possible disruptions on the supply side in the Middle East or demand swings in China.

Game of pain

Part of the dynamic in oil prices is who can deal with low oil prices for the longest.

“I characterize it as the Saudis can hold their breath probably as long as anybody in terms of holding its market share,” Marko said. “It’s going to be tug of war between what OPEC wants to see, and it’s going to be a tug of war within OPEC.”

However, the prices hurt many countries that are not friends of the U.S., such as Russia, Venezuela and Iran.

As of Dec. 31, Brent prices were $56.42/bbl. To balance its budget, Iran needs oil prices of $140/bbl, Venezuela and Algeria $121/bbl and Saudi Arabia $93/bbl.

In the U.S., low prices have helped parts of the economy. However, many E&Ps have made deep budgets cuts.

Exploration budgets have been reduced in 2015, notably on frontiers as E&Ps shift their focus to lower-risk, mature plays.

Many are also planning to squeeze oilfield service companies in order to keep shale programs profitable.

“It’s not going to be very fun for the service companies. They’re the guys that are going to be pressured even more than they’ve been pressured to cut costs,” he said.

One potential bright spot is natural gas. Switching from coal for power generation, LNG exports and manufacturing will all help the commodity.

The first LNG exports are expected in 2015 by Cheniere Energy Inc. (NYSE MKT: LNG).

“I don’t think physically that’s a big deal,” he said, noting the facility would move a couple of billion cubic feet per day. “But I think emotionally it’s going to be interesting when we start seeing it.”