American Oil and Gas Reporter - October 2024 - 63

SpecialReport: Financial Perspectives
The competition for deals that comes
from historically low volume has driven
loan pricing for well-capitalized borrowers
downward by 25 basis points
(bps) across grids, Stellar mentions.
" Most deals are coming to market at
275-375 bps as compared with 300-400
bps, which we have seen consistently
since Covid, " she details. " Higher deal
activity in the fourth quarter may drive
higher loan values. "
Price Considerations
With a few exceptions, oil prices for
the past couple years have supported
dealmaking by staying range-bound between
$70 and $80. While Stellar cautions
that global geopolitics can lead to extreme
price volatility, she says that possibility
has not affected deal flow yet. " Deals are
transacting. We are seeing that
in our shop and in recent announcements, "
she shares.
It likely helps that many
lenders anticipate higher prices
for natural gas. " The increase
in takeaway capacity is a bullish
trend for the second half of
2025, " Stellar says. " LNG exports,
increasing power demand
from data centers, widescale
electrification to meet net-zero carbon
goals, and industrial-related power demand
for manufacturing, from steel to new chip
factories, should support gas prices in
the future. "
Another bullish trend Stellar references
serves. " We expect lower prices for the
remainder of 2024, " she says. " OPEC
should provide a floor, with the possibly
of further cuts if WTI prices remain
below $70. Prices have softened earlier,
but this is something we saw in the fourth
quarter of 2022 and 2023. "
Price Survey
Like Stellar, the Haynes Boone Spring
2024 Energy Bank Price Deck Survey
highlights some bankers' expectation that
natural gas prices will go up. " Spurred by
full inventories and one of the hottest
winters on record, natural gas prices fell to
a 30-year low of less than $1.75/MMBTU
in March 2024, " the firm acknowledges.
" Yet the spring 2024 gas base-case data
anticipates prices returning to the
$3.00/MMBtu mark by 2025.
" Energy lenders continue to be hungry for
origination, as nearly all banks have been given
budget directives targeting asset and/or loan
growth in 2024. "
Cristina Stellar
SVP and Managing Director
BOK Financial Securities
is Europe's " shift in mentality and the realization
that new energies complement-
rather than replace-traditional energy,
and that net-zero can't happen without
oil and gas. " She says, " We are seeing a
general slowdown in the push for alternative
energy in favor of natural gas. "
In early 2025, gas prices should top
out at $3 given excess supply, Stellar
predicts. " Of course, if we have a cold
winter, we could see prices rally. And
Russia's gas supply to Europe during the
winter months is a wild card, " she says.
Generally, crude prices tend to dip at
the end of the driving season, a pattern
that has held so far this year, Stellar obFor
crude, Stellar says India may be
the wild card. " The country has been
taking a lot of supply, and as it comes
out of maintenance season, it could support
prices toward the end of the year and
into 2025, " she suggests.
Rig activity no longer matters as much
as it used to. " In the past, we saw a correlation
between rig count and WTI with
a lag time of about three-six months, "
Stellar describes. " That trend changed
starting in December 2022, when rigs
continued to decrease as prices stabilized.
The drivers for that shift are capital discipline,
consolidation, drilling and completion
efficiencies, and low gas prices. "
Regarding capital discipline, Stellar
says the data is clear. " For public exploration
and production companies, capital
expenditures from 2023 to 2024 are anticipated
to increase an average of 2%, "
she illustrates.
" The restoration in pricing may be
at least partially attributable to industry
prognostications on the near-term ascent
of artificial intelligence and its massive
electricity and data center demands, "
Haynes Boone assesses. " The spring
2024 gas base-case pricing data also
shows a slight, but generalized, decrease
in gas price expectations from
2026 to 2033 of $0.13$0.19/MMBtu
relative to the
fall data. "
The spring survey includes
data from 26 energy banks.
Most of the participants are regional
banks that target smaller
loans to independent oil and
gas producers, but Haynes
Boone notes the survey also includes
data from national banks that
lend to larger producers.
The survey finds that many banks'
price decks forecast lower oil prices.
" For oil prices, the base case trend line
for the spring 2024 data remains on a
similar path as the fall 2023 data, in
which there was an incremental decline
in oil prices expected until 2027, when
projected prices stabilized in the $55$60/bbl
range through 2033, " Haynes
Boone clarifies. " In the spring 2024 results,
there was, however, a slight increase
in expected oil prices during the
2029-2033 period that may be attributable
to the recent confidence in the upstream
business exemplified by the historical
spree of consolidations among
exploration and production companies
over the last year. "
Individual banks' predictions vary
widely. " In all scenarios for oil and gas,
OCTOBER 2024 63
American Oil and Gas Reporter - October 2024

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