?2008 started out robust, with oil prices ever-increasing until hitting a high of $147 in July. However, prices started heading south and then the credit crisis kicked into full gear, seemingly taking out some of the stronger investors just as worldwide oil prices started to plummet on the blow of a stronger U.S. dollar and reduced fuel demand.


E&Ps in the emerging shales had several successes, though this came while natural gas prices were falling, calling into question whether operations will be pared. Questions remain about how the price drop will affect E&Ps’ plans and what sort of challenges new companies will face.


Gulf of Mexico-focused independent Northstar Offshore Energy Partners LLC president Glynn Roberts says, “The competitive environment is positive for companies like Northstar that have capital, which is more precious than any time in recent memory. In our space, the Gulf of Mexico, I think the main competition for assets these days is from the seller.


“Once we see a pronounced bottom to the price drop, sellers may be more inclined to divest. Near term, I think it is hard for sellers to get $100 a barrel out of their thinking.”


Gulf-focused, and also privately funded, Phoenix Exploration Co. president and chief executive William Flores says sellers will suffer the most in this environment.


“I believe there is less competition for assets. This is an improvement for acquisitive companies, but a poorer outlook for sellers.”


Roberts believes E&Ps that are targeting the emerging basins will be hardest hit when it comes to hunting capital.


“To date, a lot of the success in the shale plays has been as the result of acreage positions, rather than the drillbit, with the Barnett being the possible exception to this statement. These are price-sensitive plays and prices are headed south at least for the near term so we shall see.


“In general, I doubt if capital will flow to assets with marginal economics in the near term.”


Flores says the cost of operations and commodities will determine plans for E&Ps. “Regions characterized by larger negative basis differentials and higher costs will struggle more than others inasmuch as their assets will be discounted more severely.”


In terms of challenges for the new year, Roberts believes capital will remain the toughest issue for start-ups.


“On the debt side, we are seeing higher credit requirements coupled with higher costs. It is a given that private equity is going to be very selective. Public-company investment has always been fickle and some public investors will abandon E&P for the time being, especially the hedge funds that were really just speculating ?on commodities.


“There doesn’t seem to be an exploration-prospect shortage, but there is a very real shortage of dollars needed to drill and develop wells.”

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