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- August 1, 2016: Vol. 9 Number 7

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The energy ultimatum: In a world of low oil prices investors are faced with three options: accept lower returns; take on some commodity price risk, or reject this price risk altogether

by John McKenna

When it comes to the state of the global oil and gas market, the often misquoted line by Mark Twain springs to mind: “Reports of my death have been greatly exaggerated.”

For more than a year now, the prices of both West Texas Intermediate and Brent Crude oil have been bumping along in the range of $30–$60 per barrel, currently hovering just above the $40 per barrel mark. Between 2012 and 2014, prices reached as high as $125 per barrel and never fell below $90 per barrel until they began their steady decline toward the end of 2014.

This low-price environment has led to investment stagnation, both by oil companies themselves in terms of exploration and production (E&P) spending, but also in terms of market appetite for mergers and acquisitions (M&A). According to a report by Deloitte, there was a near-halving of M&A deals in 2015 with 379 closed, down from 709 the previous year, and well short of the market peak of 815 M&A deals in 2011.

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