The Strategist

Noble Energy - Clayton Williams Energy deal: Another proof that U.S. oil market is on the mend

01/17/2017 - 13:59

US oil and gas company Noble Energy agreed to buy its competitor Clayton Williams Energy for $ 2.7 billion, said Noble Energy in a statement.

The deal will allow the company to increase its presence in promising shale basin Delaware, located in the south of the United States, which is part of a larger Permian Basin in Texas. The deal is about buying plots with a total area of almost 23 thousand hectares in Delaware Basin and 40 thousand hectares in Permian, as well as 480 kilometers of various pipelines.

Clayton Williams Energy’s shareholders will receive a portion of the amount (665 million dollars) in cash, and other part will come in the form of Noble Energy’s shares.

Apparently North American oil and gas companies have opened their wallets a little wider. Investment in the industry have started to grow.

According to official data, spending on equipment and facilities for oil exploration and production in the third quarter of 2016 declined the slowest since 2014, when the oil crisis began. The fourth quarter displayed all features of a small increase in capital costs.

At the beginning of January, number of active rigs reached a record over the past 12 months since demand from the oil companies has been slightly warmed up by rising oil prices. Further, the number decreased slightly, but still remains quite significant.

"There is an evident thaw after deep freeze in business investment - says Bernard Baumohl, chief global economist at The Economic Outlook Group. - Energy prices are stabilizing, and this creates conditions to raise spending for US oil companies."

Negative impact of sharp spending cuts in the American Energy were felt in all sectors in 2014. Now that oil prices have risen above the minimum mark, fixed in January 2016, there is a hope on overall investment growth. US is quietly increasing investment in drilling and construction of oil and gas fields. Not only can this can stop decline in the industry, but also generally support growth of the US economy at the end of the year. 

Experts warn that it’s too early to speak about impending rapid growth of American industry. Nevertheless, the oil and gas industry has already reached the event horizon, swinging from recession to recovery. This will help balance the US economy as a whole. Oil and gas corporations, who previously spent a lot of effort for the sake of minimizing costs, again are gradually increasing volume of hydrocarbon production.

The IMF suggests that oil prices will be rising in 2017.

"Average price of oil in US dollars for a barrel was $ 42.7 dollars in 2016; assumed price based on futures markets (as of December 6, 2016) is 51.2 US dollars in 2017 and 53.0 US dollars in 2018," – says the organization in a report.

In recent weeks, oil prices have "increased thanks to the agreement between major oil producers to limit production."

According to the IMF’s forecasts, average oil price will rise in 2017 by 19.9 US dollars, which is $ 2 higher than previous forecasts. In 2018, however, the growth will decrease to 3.6 dollars, down by 1.2 dollars than provided a year earlier.