Investors certainly do not believe the bid will succeed, or they're wary about the outlook for oil and gas prices because ever since Lone Star made its offer AWE's share price has traded below the bid price, closing on Friday at 77c.

An alternative view, and one which could soon generate more interest, is that investors are wary of most merger and acquisition activity in the oil industry because so little of it actually creates long-term value.

Sure, there might be short-term stock market trading opportunities, but the history of M&A in oil is not good, especially at a time of low oil prices and perhaps even more so at a time when oil prices are expected to remain lower for longer.

Supporting the Slug's view of poor returns from mergers is a fresh report on the subject from the top-flight management consulting firm McKinsey & Company.

On the same day that Lone Star rode into the Australian oil patch three McKinsey researchers published a paper titled Mergers in a low-oil-price environment: Proceed with caution.

Bob Evans, Scott Nyquist and Kassia Yanosek were particularly wary of M&A moves which followed a collapse in the oil price, a time when a "deal deluge" typically occurs, but also a process which "hasn't always created value".

What has worked in past oil price cycles are deals which enable players to lower their costs with low costs probably the most valuable asset in a volatile oil-price world.

Despite the cautious comments, the McKinsey team reckon that there are signs that M&A activity might be building with a wave of deals possibly starting to break, a time when oil company managers should think very carefully about the strategies worth pursuing.

"Some M&A strategies that worked in a rising [oil] price environment over the past 15 years might not work in today's market," the McKinsey report said.

"Most commodity industries are prone to consolidation during the downside of the cycle, when supply surpluses accumulate, prices fall and competition heats up. The oil and gas industry is no exception.

"In the 1998-to-2000 price trough, more than 25 deals greater than $US1 billion in value were executed in North America alone, including the BP-Amoco, Exxon-Mobil, and Chevron-Texaco megamergers.

"In total, this wave of deal making amounted to more than $US350 billion in just over two years.

"It took another decade to match the same amount of deal volume in North American exploration and production."

The McKinsey team has been watching the oil price and the potential for M&A action to start but believe a wide gap between buyers and sellers has been too big for deals to proceed.

That situation is starting to change with increasing signs of vulnerability among weaker players in the oil market.

What really caught the eye of the researchers is the sky-high level of debt among independent Exploration and Production (E&P) companies exposed to U.S. shale.

"This group's leverage has spiked, with debt at nearly 10-times earnings before tax, depreciation (and other changes), indicating an increasing likelihood of restructuring for the most indebted players," the research paper noted.

"Secondly, price hedges are beginning to come off. As a result, it is possible that there will be oil and gas companies available at distress prices".

But the low oil-price environment suggests from an historical perspective that "we are back in a less favorable territory for value creation through M&A."

McKinsey lists four types of deals which might create value: mega-deals such as those which saw the birth of ExxonMobil; oil basin and "regional density" deals that lower operating costs; new basin deals; and new-resource deals such as a conventional producer entering gas and shale oil basins.

But before entering into M&A in the current oil-price conditions, and with the threat of oil being lower-for-longer, McKinsey lists five key points to watch before making a move:

• Be clear on the strategy with companies defining their rationale for M&A and whether it would complement a competitive edge.
• Identify value through a rigorous due-diligence process.
• Focus on identifying costs and capital synergies up front.
• Don't bid away the value in the deal process, another way of saying don't over pay, and
• Plan post-merger integration early and execute rigorously.

As a final word, McKinsey repeats its observation that "another wave of M&A activity in the oil and gas industry could soon break".

"As leading players in the sector plan their moves, they should recognise that deals offering cost-reduction opportunities are likely to create the most value in a lower-for-longer oil-price environment," the report said.