“Declining Oil Prices = Decline in Oil Patch M&A”
The rapidly declining price of oil is having a negative impact on mergers, acquisitions and joint ventures in the oil patch.
Holt Foster, an energy lawyer at Thompson & Knight in Dallas, said that many oil and gas E&P companies are “dipping their toes in the water” of deals that they would have pursued more aggressively just a month or so ago.
“Right now, everyone is just trying to figure out what is going on,” Foster said.
Foster said that “$80 a barrel is the magic number” because that is the bottom price many of these companies use in their accounting models.
“It is extremely expensive to drill and if oil drops below $80 for a sustained period, many production companies will lay down the rigs,” he said. “If oil drops to below $75, we could see some fire sales.”
Foster and others say that many oil and gas companies are severely leveraged and the debt is guaranteed by the oil in the ground.