American Oil and Gas Reporter - July 2023 - 29

Industry Perspectives:
Capital Markets And The Wild Ride
By Dennis Kissler
and Jason Reimbold
So far, this year has been a wild ride
for the oil and natural gas sector.
In January, West Texas Intermediate
crude was selling for $82 a barrel and
natural gas prices were near $5 an
Mcf. By early May, WTI crude was
down to $64 a barrel, and by late April,
natural gas prices were down to $2 an
Mcf. Economic uncertainty about inflation,
interest rates and continued
Covid-19 lockdowns in Asia, combined
with geopolitical upheaval and a myriad
of other factors, all have contributed
to volatility and are adding challenges
to the sector's already sluggish transactions
market.
The acquisitions and divestitures
market started slow with closed transactions
reaching four-year lows and the
number of closed deals in the first
quarter of 2023 dropping 42%, quarter-over-quarter,
while continuing the
downward trend that started in the second
half of 2022 (Figure 1).
With fewer deals transacting, wouldFIGURE
1
Announced Asset Sales
90
75
70
9
60
45
44
2
11
30
57
6
18
45
2
5
6
59
3
16
12
20
43
8
6
9
62
13
17
3
62
2
12
19
53
4
15
12
13
15
31
-
1Q20
2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23
<$25MM
$25MM-$100MM
>$100MM
>$1B
WTI
JULY 2023 29
33
32
24
29
36
29
29
21
25
18
14
54
3
14
40
4
11
7
31
4
5
8
$120
$100
be sellers remained sidelined and the
flow of new asset offerings going up
for bid represented a 52% year-overyear
decline in the first quarter, as
pricing volatility and economic uncertainty
continued to hinder the market.
Crude Calculations
As we reach the year's midpoint,
experts are projecting what is to come
for the remainder of 2023-both for
the larger global economy and, more
specifically, the oil and gas sector.
If the U.S. and Asian economies can
hold together, crude oil economies can
move back to a deficit structure by more
than 1 million barrels a day before year's
end. If that happens, WTI prices may
return to the territory of $90 a barrel. If
capital expenditures for new drilling
stay stagnant while regional banks consolidate
their lending practices-it is
easy to foresee a price increase.
However, demand is something of a
wild card.
The midyear mark again finds us in
" driving season " and travel demands
seem to be hitting on all cylinders.
Nevertheless, that does not necessarily
mean we are in the clear. Consumers
already unsure about the economy may
become increasingly nervous if interest
rates climb further in the United States
and the strain on the financial system
continues to make headlines. If that
happens, crude prices may retreat to
about $50 a barrel.
Meanwhile, seeing India and others
turn discounted Russian oil into fuel is
one short-term factor that may stress
refinery profitability. That, in turn, may
contribute to misconceptions about refined
product oversupply, which seem
likely to slow crude demand. Essentially,
it is a safe bet that crude price volatility
will endure for at least as long as the
Russia-Ukraine war.
The overall market sentiment of
buyers and sellers of properties remains
more bullish for oil, with the commodity
dominating the transactions
market. Oil weighted properties represented
slightly more than two-thirds
of deals closed in the trailing 12
months ending 1Q23 (Figure 2). Despite
the volatility, perceptions of a
$80
$60
$40
18
4
8
2
4
$20
$0
WTI ($/bbl)
Closed Deals Count
American Oil and Gas Reporter - July 2023

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