08 Sep AN OPTIMISTIC LOOK INTO THE OIL AND GAS M&A MARKET DESPITE UPCOMING CHALLENGES
With oil prices teetering daily, vast increases in shale energy production leading to jump in rig count and yet OPEC continues to call for more production cuts to combat the ever frustrating price per barrel decline, it is no wonder investors and consumers are feeling more than just a bit confused on the current state of the oil and gas market.
Before jumping to the conclusion that the oil and gas market is stuck in a downward spiral, lacking the fervor to recover to its former glory and condemning any future investment hope for the energy sector, consider the industries journey since the disastrous price drop to $26/barrel in February of 2016. While 2016 left some investors with a sour taste in their mouths, others came out on top despite warnings from analysts to expect the worst. The end of the year brought not only a 24% return but the unbelievable title of top performing market in 2016. Hope that this incline would continue in 2017 seemed plausible with compliance from OPEC and non-OPEC producers, rising rig counts and the slow yet integral return of skilled industry workers who had felt the true burden of budget cuts and layoffs.
Even though the beginning of 2017 saw oil and gas prices see-saw on average between $50 – $55/barrel thanks to a 90% compliance level from OPEC producers, according to Nasdaq, and a conflicting increase in rig count due to shale drilling activities and a surplus of supply, this standoff will ultimately allow the industry to make 2017 "the slow road back", as characterized by John England, Vice Chairman, US Energy & Resources Leader and US and Americas Oil & Gas Leader for Deloitte LLP, in his 2017 Outlook in Oil and Gas, My Take. Yes, increase in shale commodity did level out the gain OPEC cuts intended, but rising shale production is putting more rigs and employees back to work which is essential for any future growth and earnings. These days, producers are focusing on adapting to the industry's ever changing climate by learning to operate and thrive at lower costs and by taking advantage of the newest innovations in drilling technology as well as finding and taking the time to develop talented individuals to aid in the migration to a new era of cautious optimism. That is not to say there are not concerns over climate change, electric cars and other forms of renewable energy, as well as new cost-effective trends such as ride sharing, as mentioned by England, but there are also a number of optimistic and undeniable truths he offers us in return. The world, as large and populated as it is, will always need energy. Even though renewable energy is on the rise, the technological advancements being made to make fossil fuels safer and cleaner than ever before is also on the rise and will be essential to the future of energy for many years to come.
The resilience of the oil and gas industry is undeniable. Fluctuation, as we have seen throughout the industry's history, is unavoidable, however, the adaptation and growth we are seeing by incorporating new and advanced technologies, through cost control, and long-term planning for the future can and will optimize not just a favorable but a confident market in the years to come.