M&A advisor cites 2011 E&P transaction themes, market changes to watch.

Strong demand for oil-weighted assets will continue in 2011, particularly in the oil window of the Eagle Ford in South Texas and in the vertical Wolfberry, a multi-zone Wolfcamp and Spraberry play, in the Permian Basin.

But, will the wells flow into transaction data rooms? “Will oil prices above $100 a barrel create a chill in the acquisition market?” asks Chris Simon, managing director and head of A&D for Raymond James & Associates Inc.

That question remains to be answered, but other 2011 M&A themes are on the surface, he told members of ADAM Houston, an organization of E&P M&A professionals.

--Joint ventures will continue, he says, in U.S. unconventional-resource plays, driven by foreign E&Ps wanting access to reserves, technology and expertise. He expects many more JVs will be announced in coming months.

--Upstream MLPs will continue to be aggressive in data rooms for producing properties and the number of MLPs competing for packages will multiply, as long as they continue to have ready access to capital. “There will be a few IPOs of new MLPs this year. This is largely due to the demand for yield by investors.”

--Likewise, more U.S. royalty trusts may be formed this year to create capital to drill resource plays, while distribution-seeking, public-equity investors remain ravenous for income-producing investments, he adds. “Like the MLP, the U.S. royalty trust is a yield product.”

Market changes to watch include a continued depressed gas-price strip, which may force some E&Ps to let loose of non-core assets to provide income to continue to work core properties. Whole companies may be sold, he adds. The first to fall is Appalachian gas-focused NGas Resources Inc., which is to be purchased by Magnum Hunter Resources Corp.

He also warns that February U.S. gas-supply data may be misleadingly bullish. Much of the gas-producing U.S. was frozen in early February, and frozen gas lines shut in some production. (On the demand side, a fifth of Texas’ electric-power plants were shut in the first few days of February due to frozen gas lines, resulting in controversial rolling blackouts throughout the state while temperatures fell into the teens.)

Simon estimates as much as 5 billion cubic feet of gas was shut in due to freeze offs each of the days.

“The bigger issue going forward is that liquids-rich gas freezes faster than dry gas,” he adds. “This has the potential to provide ‘head fakes’ in supply data.”

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, OilandGasInvestor.com Today, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.