After a somewhat sluggish 2002, the dollar value of upstream oil and gas mergers and acquisitions picked up in 2003. And there are signs that the deal-making in 2004 could get off to a fast start. December numbers were not available at press time, but through November, there were 128 transactions for U.S. assets worth a total of $13.3 billion, according to David Bole, senior vice president and managing director of business development for transaction-advisory firm Randall & Dewey Inc., Houston. In all of 2002, there were 170 deals worth only $10 billion. The average price per barrel of oil equivalent improved in 2003 as well, Bole adds. The 2002 average was $6.14; the average through September 2003 was $6.64. Bole says even more deals could have been done if more companies were willing to sell. While some companies pruned their portfolios, others hung on to their reserves to take advantage of the high commodity prices. "The biggest challenge for 2003 was not enough properties to satisfy the demand," Bole says. There was a dearth of mega-deals, he adds. The only one was Devon Energy's purchase of Ocean Energy in February, worth $5.3 billion. The next-biggest U.S. deal was in the $500-million range. Independents enjoyed low interest rates and high commodity prices in 2003. "A fair number of independents are able to borrow at the bank in the level of 4% to 5% interest rates, which is the lowest level they've seen in years. While at the same time, they've been able to sell their oil well above $30 and gas well above $6," Bole says. One of the drivers of 2004 activity will be the "spread" between interest rates and higher prices, he adds. Conventional wisdom says interest rates are likely to rise, and oil and gas prices are likely to soften. Kenneth Olive, chief executive officer of The Oil & Gas Asset Clearinghouse and Petroleum Place Energy Advisors, is upbeat about the 2004 A&D market. While the beginning of the year can be pretty slow, the asset-divestment companies have four new projects. "We see a lot of people who are ready to come out early," he says.