The oil and gas sector has been through a rough year in 2015 with a significant drop in the price of oil. The oil and gas market is, however, cyclical and many professionals in the sector are starting to feel the time is near for deploying investment funds into oil and gas assets. The oil market is currently in the midst of its most bearish down cycle in decades. That said, while times are clearly tough right now, there do appear to be better days ahead for the commodity. The current price of oil is too low to sustain production levels nor to meet growing worldwide demand.
In the United States, domestic production has nearly doubled over the last several years, creating a situation where oil imports need to find another home. Saudi, Nigerian and Algerian oil that once was sold in the United States is suddenly competing for Asian markets, and the producers are forced to drop prices. Canadian and Iraqi oil production and exports are rising year after year. The Russians have managed to keep pumping despite inherent economic issues.
There are signs, however, that production is falling in the United States and some other oil-producing countries because of the drop in exploration investments. Production needs to drop in order for prices to recover. In addition to production reductions, demand will need to stabilize or increase to assist in recovery. A potential recession in 2016 could provide the “reset” needed for economic expansion to begin anew assisting a rise in prices.
There are a number of independent oil and gas producers that are in distressed situations and oil and gas assets can be purchased at a fraction of value from 2013 and 2014 valuations. Operators with liquid investment capital are able to deploy that capital in the coming quarters with the knowledge they are purchasing assets at well below recent historical valuations. Many operators may even seek long term asset strategies where they purchase assets at fraction of value to only cap those assets until the price of oil returns to a more normalized market price.
Interested in raising capital for oil and gas assets? Now may be the time to be opportunistic in raising capital to purchase undervalued and distressed oil and gas production assets.
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Friday March 11, 2016
Category: Capital Formation and Regulation D
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