The value buyers now place on various reserves categories has changed dramatically from a few years ago, says Jefferies & Co.’s Bill Marko. At the peak, companies would pay 100% of the PDP at a low discount rate (typically between 8-10%), for behind pipes nearly 100%, for a good portion of the PUDs, and they might even pay for the probables and possibles.

When the market bottomed out a year ago, however, sellers were only getting paid for the PDP component. “That’s where the buyers adjusted,” says Marko. “They were not willing to take much risk beyond PDP.”

That is starting to change. “We’ve seen some decently aggressive oil deals lately. People are starting to pay more for value beyond PDP.”

While A&D activity has trended up, the return has been slower than he anticipated. Most deals in second-half 2009 involved shale or oil, and many were “do-overs” from broken deals in late 2008, such as Denbury Resources’ acquisition of Conroe Field assets, and several divestitures by Forest Oil.

Unease over gas prices will stifle gas-weighted deals over the next year, he anticipates. “They’re still worried about over supply, but you’ll see some deals.”

Noncore exits will come to the forefront, such as recent packages offered by St. Mary Land & Exploration, Encana and Forest. “Others will come to market where companies are cutting costs. And a lot of shale-focused companies are trying to sell their nonshales.”

2010 will involve big companies taking positions akin to ENI’s quarter-billion dollar deal in the Barnett to ExxonMobil’s $41-billion buyout of XTO Energy. “We’ll see everything in between,” he says.

Joint ventures will continue to be popular, and farm downs in the deepwater Gulf of Mexico will proliferate.

“It will be a good year for A&D.”