Oil prices will only stay at current levels for the next few months, according to Stuart Amor, the ex-head of oil and gas research at financial advisory firm RFC Ambrian.
Amor, who made the statement in a presentation at the Finding African Oil event in London Monday, which was attended by Rigzone, said that around 10 percent of non-OPEC supply is cash-flow negative at the operating level in the low oil price environment affecting the industry today.
“At $30 per barrel, which is where we are today, about ten percent of non-OPEC supply is cash flow negative at the operating level, so I don’t think the oil prices can stay down here for more than a few months. If they do, then some of that supply is going to get shut-in,” Amor said, addressing oil and gas delegates at Finding Petroleum’s conference.
In spite of the decreasing oil price, Amor suggested in his presentation that the oil and gas industry wouldn’t see an increase in M&A (merger and acquisition) transactions until the volatility of crude prices subsided:
“The biggest determinant in the number of M&A transactions is the commodity’s volatility. Highly volatile prices, particularly at the long end of the curve, and we’ve seen a lot of that over the last couple of weeks, make it much harder for buyers and sellers to agree prices. So we live in an uncertain world and it’s got a whole more uncertain in the last two weeks. Indeed the recent spike in crude volatility hasn’t been seen since the height of the global financial crisis in 2008. That will need to change for a lot of M&A transactions now to occur.”
Amor held the position of head of oil and gas research at RFC Ambrian for almost four years, covering several Africa-focused mid-cap and junior oil companies including Tullow Oil, Ophir Energy, Seplat and African Oil Corp. He was previously the head of global equity research at ING.