Page 5 - NorthAmOil Week 07 2023

NorthAmOil COMMENTARY NorthAmOil

bridging the bid-ask spread and navigating as reporting that US shale producers in 2022
commodity price volatility, with oil prices likely generated more than $150bn in free cash flow
to be steady or rising during the first half of the – a record. They are forecast to generate $120bn
year while gas prices struggle. However, interest more in 2023. With much debt paid down, com-
in buying gas assets could rise around the mid- panies are ripe for making deals.
dle of the year, to take advantage of low prices “If you can go buy resources at a reasonable
ahead of a US LNG export ramp-up that will value and you have the balance sheet and the
eventually drive gas prices higher. cash to do it, you will go to it at these prices,”
Guggenheim Partners’ senior managing
What next? director of investment banking, Muhammad
According to the Financial Times, cash-rich Laghari, was reported as saying.
US oil producers are already hunting for deals. M&A activity is expected to kick off in the
Given the decrease of prime drilling sites in second quarter, particularly with private equity
shale plays, a wave of oil-sector consolidation involved, said the article.
could start in the second quarter of 2023 as com- Bankers interviewed said that smaller public
panies scramble to keep increasing production. oil and gas producers – especially those with
Both public and private sellers are also becoming market values of less than $10bn – could be
keener to strike deals. targets. They will struggle to access debt and Smaller public
“You’re going to have a raft of M&A in 2023,” equity markets, and face higher borrowing
Jefferies’ global head of energy banking, Pete costs because of interest rates. “We see more and oil and gas
Bowden, told the newspaper. “They’re out there more small-to mid-cap companies having lim- producers –
shopping for more inventory. And we’re back in ited options to acquire or sell, so mergers with
the business of selling Permian businesses with each other may be the best solution to increase especially those
prime locations to sophisticated parties at real scale and relevance,” Laghari told the Financial
valuations.” Times. with market
Gas prices have been too depressed for the Bid-ask spreads are narrower, with more
trend to extend beyond oil until perhaps the companies on the same page regarding price values of less
middle of the year. expectations given the bullish oil price outlook. than $10bn –
Oil majors have been reaping significant prof- “There’s a good match with the needs of buy-
its, on the back of crude prices boosted by the ers and the needs of sellers right now. You just could be targets.
fall-out of Russia’s invasion of Ukraine. They need a little co-operation on price to get the
are expected to retain a focus on returning cash deals done,” said Enverus’ Dittmar.
to shareholders through higher dividends and “I don’t know what that initial precursor is
share buybacks, but there may also be cash left going to be – what the bellwether is going to
over. be – that will say: OK, the door is opening,”
In late January, ExxonMobil reported an concluded a Haynes and Boone law partner,
industry-wide record $59.1bn in profits, and Buddy Clark. “But once it opens – you’ve seen
Chevron has since posted a profit of $36.5bn. it once you’ve seen it 100 times – it’ll come in
The Financial Times quoted Rystad Energy with a flood.”™

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