“A new wave of consolidations is about to begin” in the oil and gas business after 2008 saw a 25 percent drop in the number of asset deals, a trend seen as a sign of an industry bracing for “opportunity”.

The credit collapse has “dramatically impacted” oil companies just as oil is a third what it cost at its historic high in July. But “modestly” strong long-term demand is cause for some cheer, according to Ernst & Young LLP's Energy Center.

Oil companies are urged to be in “capital allocation mode” — getting ready for opportunity seen when credit again flows.

"Credit will start flowing again," according to Charles Swanson, Houston area managing partner.

"When it does, companies will be subject to much greater scrutiny, (and) those who are successful at raising capital should be the companies with their financial house in order.”

Fewer transactions seem to suggest consolidations are in order, and much of the oil and gas industry thinks so. E&Y analysts said a showing of 70 percent of those with a stake in the industry say it’ll be the end of 2009 before the “market” for oil and gas mergers and acquisitions returns.

"We're still seeing an expectation gap between what sellers want and what buyers are willing to pay," an Ernst & Young transactions leader stated. "This gap might close over the next few months, (and) the transactions we're seeing now are desperation driven.”

He says it’s “critical” to maintain a long-term outlook to take advantage of the right investment opportunities and bargains made available in the medium term.

“Be disciplined … Take the emotion out of it. And stay the steady course.”

Tags: Ernst & Young LLP's Energy Center