Seemingly nothing can staunch 2015’s flow of oil or the collateral damage it has inflicted on the A&D world.

Since OPEC handed in its de facto resignation as a price-setting organization last November and instead decided to fight for market share, oil prices have been on a wild ride down. “If there isn’t an organization that’s willing to rest supply for the sake of price, you do have a risk of being perpetually oversupplied, said David Deckelbaum, director and equity research analyst for KeyBanc Capital Markets Inc.

Despite tumbling prices, oil production keeps rising. The U.S., Saudi Arabia and Iraq have increased volumes by 2 million barrels per day (MMbbl/d) since November. Since then, production growth has far outstripped global demand, said IHS Energy in a July report.

A&D activity has been nibbled at from all directions. Few deals have gone beyond sellers’ showrooms, as buyers look for bargains and sellers explore options before letting assets go at a discount. Many companies have withstood divestitures by cutting staff and capex and through easy access to liquidity through the capital markets, lenders and private equity.

Fears of a prolonged rut have shifted to grim acceptance of the gritty reality of business in the trenches.

In second-quarter 2015, the number of upstream deals valued at more than $50 million continued to drop, PwC U.S. said in August. The quarter’s 18 deals, worth $8.3 billion, reflected a 55% decrease in deal activity and a 67% drop in value compared to the same period in 2014.

Unlike the busts of previous years, in this downturn capital markets have had E&Ps’ backs. Companies that might otherwise be gasping for liquidity have been made comfortable. In the first three months of 2015, oil and gas firms raised at least $8 billion through equity offerings.

In April, Richard Kinder, Kinder Morgan Inc. chairman and CEO, said E&Ps’ ability to come into easy money had made deals tricky to pull off. “There’s a lot of cheap money out there chasing deals right now, he said.

The stock market has stayed relatively calm. In many cases, especially among large-cap E&Ps, share prices have not yet reflected the oil price freefall, said Thomas Driscoll, an analyst with Barclays Equity Research. “Despite the recent share price decline, we view the shares as significantly overvalued, he said in a July report.

Private equity has stepped in to help shore up distressed companies. With longer investment horizons, the firms have gone shopping.

“There aren’t that many times where you have a window where the commodity collapses by 50%, Deckelbaum said. “They’re [private equity firms] built to take advantage of historical price dislocations.

With a variety of safety nets in place, deals have sputtered, lurched forward and sputtered again. In the first six months of 2015, U.S. E&Ps closed $8.5 billion in deals, some left over from 2014. That’s nearly $15 billion less than first-half 2014, according to A-DCenter.com.

In July, deal flow picked up, but it was unclear whether the spike in activity would last. Through July, BMO Capital Markets tallied 22 deals worth $10.9 billion compared with 82 deals worth $55.2 billion in 2014.

Moody clues

E&Ps have written down billions of dollars in the book value of their oil and gas properties since the downdraft began. In early 2015, Apache Corp. recorded a $7.2 billion impairment. At the end of July, Halcon Resources Corp. took a $949 million noncash impairment on its assets. But distressed E&P sales haven’t materialized, thanks to plentiful capital.

The psychology of the downturn so far has been industrywide anxiety. Acquirers are gauging asset value based on what they can produce in a lower price regime, said Leah Smith, vice president of exploration for Appaloosa Energy, The Woodlands, Texas. But they remain hesitant with prices in flux.

Deal makers that are typically risk-taking mavericks are looking instead for opportunities to use capital in a mid-$50s world, Deckelbaum said. “You also see hesitancy on the part of acquirers that are unwilling to pay for what would imply superior pricing to the commodities curve. And if you’re public, how do you communicate that to investors?

Oil price uncertainty flared most recently with the specter of Iran bringing to market as much as 1 MMbbl/d.

As oil hovered around $48 per barrel in late July, Smith said sellers’ expectations remain high. “Most people are still trying to recoup investment that they made on an asset in a higher price regime.

Deckelbaum said sellers are hunkering down and getting leaner. Even large E&Ps such as Chesapeake Energy Corp. have halted dividends, while MLP Linn Energy LLC announced it may suspend its distributions at the end of the third quarter to save about $450 million in cash.

Smith said Forest Oil is also facing a difficult financial situation. “Forest is basically a zombie, she said. “They have almost more debt than they do asset value. I think there will be other companies in the same situation.

E&Ps, meantime, keep increasing production. Partly, that’s because of modern energy investors’ reluctance to fund companies that aren’t growing production. “I think the over-arching dynamic is trying to placate an investor sentiment that is kind of schizophrenic and bipolar about whether they want a value stock or a growth stock, Deckelbaum said.

Companies must walk a tightrope between protecting the balance sheet and pursuing production growth. “They don’t want to fall into this camp of irrelevancy where growth stagnates and the resource they operate loses its appeal, he said.

Fireproof sales

Industry leaders, lawyers and analysts have seen a good number of deals fall apart in 2015—if they’ve been able to get past the tire-kicking stage at all. The first half of the year was a pressure test for unconventional producers, EY said in a report. The firm predicts that as 2015 rolls over to 2016, A&D will flourish, because highly leveraged companies will be eager to sell assets to raise cash.

Math in the current market is not on the industry’s side. Lower oil prices provide lower margins, so assets have to be dirt cheap. “It’s tough to work in the mid-$50s range unless things are truly fire sales, Deckelbaum said.

And U.S. woes are part of a global A&D slowdown as deal making has became labored and sporadic worldwide. In second-quarter 2015, 137 deals were announced, the lowest number since fourth-quarter 2008, according to the Energy Information Administration (EIA).

If all announced first-half 2015 U.S. E&P deals closed, they would be worth roughly $10 billion. The start of the second half showed promise, as July alone accounted for $5.4 billion in announced deals.

Private independent FourPoint Energy LLC said in July it had agreed to buy Chesapeake Energy’s Anadarko Basin subsidiaries for $840 million but was hampered by commodity prices, among other factors.

“We had a pretty epic collapse in both crude oil prices and rig count and had to navigate those waters to keep that deal together, said George Solich, president and CEO of FourPoint. “We had to make some significant changes to the deal to make it happen.

Solich said in a July interview his private equity backers are focused on the sector. “You can see from investments they’re doing with other companies they have a lot of money to put to work, he said.

The largest E&P deal announced in the first half was Noble Energy Inc.’s merger acquisition of Rosetta Resources’ Permian and Eagle Ford assets. The all-stock deal was worth $3.9 billion.

Stock-for-stock and MLP unit-for-unit deals have become increasingly common this year. “I think you will see a lot of deals done with equity, especially in a market like this, Deckelbaum said. “There is no room for companies to be taking on incremental leverage.

Noble and Rosetta closed their deal in July. Most E&P deals paled in comparison to midstream asset transactions, however. The top 10 midstream deals alone were worth $54 billion. Such assets remain in favor because of the relative scarcity of infrastructure and their cash flow transparency. E&Ps have used their midstream assets as cash cows.

In the Bakken Shale, Hess Corp. sold a 50% interest in its midstream assets for $5.4 billion, including $2.7 billion in cash. Pioneer Natural Resources dealt its Eagle Ford midstream interests for more than $1 billion.

“It’s a huge arbitrage for companies that own midstream assets on the E&P side and what they’re still able to get for those assets in the divestiture market right now, Deckelbaum said.

Pruning hedges

The outlook for some oil companies is far from rosy. A number of bankruptcies have hit operators, production has missed the mark for others, and some have drilled core assets for pennies on the dollar.

In May, Emerald Oil Inc. agreed to buy interests in Lea and Eddy counties, New Mexico, from Yates Petroleum Corp. for $75 million. Emerald pulled out, forfeiting $752,000, after failing to raise money through common stock offerings.

WPX Energy likewise saw a $155 million divestiture of its Powder River Basin assets fall through after the deal failed to close.

A few companies are selling assets to cover debt or operational costs. But E&Ps have largely been insulated by oil production hedges.

“I think many companies have been hedged and that’s what has held some of this back, Smith said. “They’ve been hedged through most of this year, and a lot of these hedges will begin to expire in the fourth quarter.

Acquirers may be watching the clock on hedges. At one company, hedges have provided 45% of revenues. Rosetta had 75% of its 2015 oil production hedged.

Analysts say 2016 hedges won’t provide nearly the same cover after December. Adam Leight, an analyst with RBC Capital Markets, said in a July report that some producers added 2016 hedges and others remain on the sidelines. Without the hedges, “companies that have debt, are highly levered or not that liquid are going to have to do something or they are going to be in serious trouble, he said.

And that means deals.

The glut must go

For U.S. E&Ps, the game has changed completely.

Smith says her mindset has turned back to the downturns of the late 1980s and 1990s. Appaloosa is looking at new plays and concepts and revamping its approach in a low oil price regime.

“We’re backing off from plays that need $100 a barrel to make money, of course, she said.

Like other companies, Smith said, Appaloosa is handling the limbo of attractive properties that have lost value. “A year ago, we evaluated an asset in the Uinta Basin that is being held by production. It’s a lovely development, it’s ready to go. Now we will wait until the timing is right.

The company was running the numbers and deciding its options when oil prices fell. “We just decided it’s prudent to wait for better commodity prices, she said.

Making an acquisition in an era of oversupply requires making sure an asset will still make money at low prices, she said. She also cautioned that deals shouldn’t be so expensive that they negatively impact liquidity. It’s important now more than ever to fully understand the investment and execution risk for an asset.

U.S. crude stocks are up by nearly 80 MMbbl since January. European stocks are near five-year highs, said James Burkhard, vice president and head of oil market research for IHS Energy.

“For a decline in U.S. output to appreciably erode the global surplus, prices would need to range in the low-$40s or less for several months, Burkhard said.

By the end of July, U.S. E&Ps had slashed capex, leading to the mothballing of more than 1,000 rigs since 2014. Nevertheless, the U.S. is estimated to produce 800,000 bbl/d more in 2015 than it did last year, according to the EIA.

In time, though, balance will return. “The industry will cut back and reach a new equilibrium at a much lower level, Smith said.

The question Deckelbaum poses is how long supply can continue to grow and how long OPEC can produce at elevated levels with limited spare capacity. “We really haven’t seen true distress permeate the market yet, Deckelbaum said.

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