Summary
Oil & Gas Companies are Acquiring Properties & Companies opportunistically taking advantage of today's Low Commodity Prices which are expected to continue through 2009 into first half of 2010. Upstream E&P Companies that were highly financially leveraged during the High Commodity Price Period have been most severely impacted by the precipitous decline of commodity prices and today's more capital constrained financial markets. 2009 is a Transition Year for Oil & Gas E&P as well funded Integrated Major Oil companies defer traditional organic Drilling for Reserves, as they wait for Service Company and Oilfield Suppliers prices to reconcile with anticipated $70-$90 per barrel oil prices, as they decline from recent highs associated with $130-$150 oil commodity prices.
Analysis
Recent E&P activity during 2009 demonstrates a behavioral change following the recent precipitous decline in Oil & Gas commodity prices.
Oil & Gas Companies are Acquiring Properties & Companies opportunistically taking advantage of today's Low Commodity Prices which are expected to continue through 2009 into first half of 2010.
Upstream E&P Companies withour Downstream Refining & Chemicals business that were highly Leveraged during the recent High Commodity Price Period have been most severely impacted by the precipitous decline of commodity prices combined with the more capital constrained financial markets since the economic downturn of late 2008 and 2009.
Thus, 2009 is a Transition year for Oil & Gas E&P as well funded Integrated Major Oil companies defer traditional organic Drilling for reserves, as they wait for Service Company and Oilfield Suppliers prices to reconcile with anticipated $70-$90 per barrel oil prices, as they decline from recent highs associated with $130-$150 oil commodity prices.
Oil & Gas companies react differently to rapid and severe commodity price swings. Most successful and experienced companies ladder their Upstream Exploration, Appraisal and Development investments to help insulate them from the deleterious impact of severe commodity price volatility.
Most successful E&P programs divide their Upstream E&P Asset investments into short, medium and long-term investments. Typically the short-term investments are in either onshore or shallow water shelf offshore areas to facilitate the benefits of short-term commodity price increases through quick drilling of wells with rapid access to pipeline infrastructure to monetize the hydrocarbons by getting them to market quickly.
The larger Deepwater Oil & Gas Exploration, Appraisal and Development programs typically require at least 7-10 years for first Oil or Gas production, and even longer to achieve first profit Oil/Gas. They key is to acieve the appropriate balance between various investment time horizons to maintain enough near-term cash flow to fund vital medium to long-term investments which yield reserve replenishment which is the life blood of survival and maintaining a strong competitive position within their peer group of companies.
