Extraordinarily low natural gas prices are an opportunity for not only E&P buyers betting on higher forward prices, but for other entities to capture returns from the high-Btu hydrocarbon's low price compared with oil, says Ken Dewey, 1989 co-founder of oil and gas asset-transaction advisory firm Randall & Dewey that is now part of investment-banking firm Jefferies & Co. Inc.

"From where I sit, the depressed natural gas price is an opportunity for, perhaps, different kinds of entities to become involved," Dewey said at Oil and Gas Investor and A&D Watch's recent 10th annual A&D Strategies & Opportunities conference.

"There is potential for reindustrialization of our country with cheap and abundant natural gas."

Potential buyers are end-users, for example. "You have the chance now to have aluminum smelters, steel plants and chemical plants all to run on cheap and abundant gas. It's happening very slowly, but we have an industrial base now that could rely on cheap and abundant gas…with a good, creative approach to it."

Dewey and fellow co-founder Jack Randall were recognized at the conference with an A&D lifetime achievement award. Randall says, "On natural gas, it's this disconnect between what oil is worth and what gas is worth."

Currently, the oil:gas price ratio is 1:22. There are plenty of natural gas uses—gas to liquids, gas as a transportation fuel. "Despite all the good help we get out of Washington, maybe the (gas-production) industry is going to develop the nation's energy policy just by the market forces pushing people into gas."

What would Randall buy right now? History has shown that a buyer can't go wrong if the reservoir is long-life and complicated, he says. "Any reservoir that is a long-life reservoir…that's such a tremendous thing to have in an acquisition. Even if you guess wrong or the market has guessed wrong on prices, you are eventually going to get bailed out."

He also recommends that buyers admit to unknowns. "For an engineer, it is tough to recognize what we don't know. You do the best engineering in the world, we draw a 'p over Z' (decline) curve and we decide the pressure…." But the field may prove larger in time.

More complex reservoirs are usually under-valued in bids, he says. "The history of our business shows that these old fields get redeveloped and redeveloped."

Randall and Dewey were previously responsible for asset buying and selling at Amoco Corp., and have some 30 years of experience, each, in the oil and gas A&D business.

The toughest buyers and sellers can be private-company owners, Dewey says, "because every penny in negotiation is their own. They act like it's their money—because it is."

And, besides being based on all the science of reserves and production, buying and selling properties is an emotional one and unique to each party. Dewey says, "It's a people business. A lot of emotion is tied up in the whole horse race. People like to win; they don't like to lose."

Contact the author, Nissa Darbonne, at ndarbonne@hartenergy.com.