The combination of pent-up demand combined with the opening of capital markets and a bullish outlook for gas prices is going to create an exciting deal flow in late 2009 and into 2010, driven by shale plays, according to Jefferies Randall & Dewey managing director Bill Marko. Marko spoke at Hart’s Developing Unconventional Gas conference in Fort Worth.

“You need optimistic buyers, people who believe in $6 to $7 as the prevailing price,” he said. “At $6 to $7, the shales work all day long, even without cost reductions.”

Paired weith pessimistic sellers, deal flow could ramp up even more. “Sellers can remain bears, but as long as there are some bullish buyers, deals will get done.”

At present, however, “plain vanilla A&D is not functioning.” The bid/ask gap will close and sellers and buyers will capitulate at about $55 for oil and $6 for gas, he predicted, and when that happens deal flow “will take off again.”

In the meantime, joint ventures will continue and increase, more so than straight sales, as the gas-price outlook is not so good that sellers believe they can “sell at the top.” Instead, most companies now want to develop their holdings more before selling to increase value. Jefferies is currently working on several such deals, he said.

“Drilling ventures are going to be what work best in the shales. It matches people long on acreage and short on money with those that don’t have the access and maybe don’t even want to operate. And you’re sharing the risk: If prices are attractive you share in the reward. If not, you share in the pain. You’ve just got to marry someone you can get along with.”

JVs also are a great way to overcome bid/ask differences, he said.

Majors and national oil companies are here and the rest are coming, he said. “Some are very quietly pursuing legacy positions, especially in the Haynesville. European majors are taking a hard look at this.”

The acquisitions by BP in the Woodford and Fayetteville shales from Chesapeake Energy have stirred majors and national oil companies to take a hard look at these onshore U.S. resource plays, Marko said.

“Majors and NOCs want to cut their teeth here. They want to learn. They especially want help with the land work—that just boggles their mind with the thousands and thousands of leases.”

More A&D activity will flourish as private-equity investments in the shales grow, through both small and large acquisitions. “They see some pretty compelling economics.”

Conversely, private-equity sponsored E&Ps will benefit from the nonshale divestitures of shale players selling noncore positions to pay to develop the shales.

While everyone anticipates corporate acquisitions to pick up, Marko said the same bid/ask spread has stifled such activity thus far. “Someone that sold for $40 a share last year and is now at $8 still wants $60,” he joked.

Yet he expects selected targeted corporate acquisitions. “It will be done pretty cautiously, but I wouldn’t be surprised if there’s a deal or two on the corporate side.”