Despite Recession Fears, Key E&P Needs Will Feed M&A

Upstream oil and gas companies continue to suffer from a double standard in the markets, with low equity valuations causing headaches for equity-based deals. 

Despite Recession Fears, Key E&P Needs Will Feed M&A

Public E&Ps generally aspire to have about 10 years of inventory. However, as companies accelerate their drilling, “you start chewing through that [reserve] very quickly,” said KeyBanc’s Nicholas Stuart. Pictured, stacked drilling rigs in Midland, Texas, in the Permian Basin. (Source: Shutterstock.com)  

The driving forces for oil and gas M&A appear on solid footing even as the U.S. shows signs of stumbling into an economic recession and continued market and price volatility.

For one, world oil demand in 2023 is forecast to surpass pre-pandemic levels, rising to 101.6 MMbbl/d next year, according to a June oil market report by the International Energy Agency (IEA).

But public oil and gas companies’ M&A decisions will be driven by their need to replace inventory, the value their shares are able to capture and the ease with which they can access capital, according to Nicholas Stuart, managing director of KeyBanc Capital Markets Inc.’s energy investment and corporate banking group.

“Good news is coming if you’re an owner of a company in my opinion,” Stuart said on June 29 at the DUG Bakken & Rockies Conference and Exhibition hosted by Hart Energy in Denver.

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Darren Barbee

Darren Barbee is senior editor for Oil and Gas Investor magazine.