There were plenty of oil-patch optimists looking for the silver lining at NAPE 2002 in Houston. The aisles of the show were filled with buyers looking to farm into prospects that will make good drilling targets once oil and gas prices invariably rise again. And quite a few capital providers see this as an opportunity. They note that some sizeable packages-byproducts of last year's merger spree-are scheduled to hit the market this year. "Continued consolidation and asset rationalization by the super-independents and trading companies will create significant acquisition opportunities for growth-oriented companies in 2002," says James R. McBride, manager of the Houston office for Fleet Boston Financial's global energy group. "We're bullish on the long-term outlook for North American gas, but expect weakness into the spring and through the summer. We think the commodity-price weakness will further stimulate property-acquisition opportunities for our clients." Timothy E. Merrell, senior vice president of energy lending for the Bank of Texas, says this year's NAPE crowd was larger than last year, but more subdued-many participants expected last year's high gas prices to last longer. However, he anticipates companies that are not overlevered will be looking to buy at bargain prices. "This industry is always looking for financing," Merrell says. One trend he spotted at the show was that some engineers who have left the big independent producers are starting their own businesses, and they're looking for start-up funds to buy the prospects they've grown to know throughout their career. Bank debt, however, may have become overwhelming for some companies as commodity prices have plunged, says M. Sean Smith, an EnCap Investments LLC vice president. The firm, which offers private equity, has received calls from bankers inquiring as to whether EnCap can put equity into companies that need to restructure their debt load, given the current commodity-price environment. "There are opportunities to buy in 2002, but outside pressures will plague some companies," Smith says, adding that big and not-so-big companies alike are starting to feel the squeeze. S. Wil VanLoh Jr., managing partner for Quantum Energy Partners, another private-equity provider, is looking to place the firm's latest fund's $220 million. The fund's investors are much more interested in putting money into the energy industry than they used to be, he says. Last year's skyrocketing commodity prices convinced them there's good money to be made, and they recognize that the current volatility represents a buying opportunity. "The line used to be, 'We don't do energy,'" he says. "Not any more." -Jodi Wetuski

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