A financial view on the energy market

What are the major trends you see in the energy sector?

With the recovery in commodity prices, we have seen an increasing number of assets on the market. This shift in market activity has enabled E&Ps to shed mostly non-core assets while also providing new investment opportunities for buyers with acquisition capital. However, the industry is also experiencing more limited availability to capital than in recent years. Since the pandemic, a number of financial institutions have exited the oil and gas sector, and this has created fewer financing options for the industry.

Why we are seeing prices surges, including natural gas at a seven-year high?

Global demand has recovered significantly since the pandemic. However, many producers have limited access to capital and a mandate—both public and private—to return capital to their shareholders which has stymied drilling outside of cash flow to meet the surging demand.

Shift in market activity has enabled E&Ps to shed mostly non-core assets.

What impact is energy transition on energy lending?

The energy transition is going to take place over an extended period of time—it just won’t happen overnight. Accordingly, we anticipate reserve-based lending to continue being an important financial service well into the future. Energy is in BOK Financial’s DNA. Our company was founded by oil industry professionals in 1910, and we have been a partner to the industry ever since. Even as a number of financial institutions have decided to leave the oil and gas sector over the past few years, BOKF is finding opportunities to expand our business by filling the void left by those who have exited.

Since the pandemic, a number of financial institutions have exited the oil and gas sector, and this has created fewer financing options for the industry.

Why energy is still a good investment despite the volatility we have seen over the past two years?

The volatility itself is what provides opportunities for investors in the sector. For example, asset acquisitions that were made earlier this year should be more highly valued today with the continued rise of oil and gas prices (if all else is held constant). In addition to rising commodity prices, more assets coming to market should translate into more opportunities for companies and their investors to expand holdings by making accretive acquisitions. Oil and natural gas are going to be important to the global energy mix for a long time, and this continued need for hydrocarbons should support the investment potential.

How supply is impacting the space and what we should see in the next several months?

It is difficult to make predictions regarding commodities, but the market view appears to anticipate continued production constraints as demand recovery advances.