The world demand for crude, particularly in China, is expected to keep prices strong and volatile for the foreseeable future, according to a panel of oil and gas experts at a recent energy forum held in Houston.

Speaking on a wide range of energy-related issues at the recent Houston Energy Forum, organized by the Houston Business Journal, the panelists said demand from China was one of the key drivers of world oil prices.

Bobby Tudor, chief executive of Tudor Pickering Holt & Co., said he expected oil prices to remain strong because of ongoing worldwide demand for the foreseeable future.

A price of about $95 per barrel is the level that most producers need to get a return in the low double digits, he said. If prices fall below $80 per barrel, Tudor said drilling activity in North America would likely slow.

The strong interest in unconventional plays has also generated capital from unconventional sources. Private equity funds remain interested in the sector, as have investors from Asia and Norway.

These investors have provided an important source of funds to develop unconventional areas in the Utica, Marcellus and Eagle Ford, he said. Only recently, Tudor heard from an Indian oil company that wanted to invest $500 million in unconventional shale plays. “That money continues to come,” he said.

The market outlook for natural gas is a different story. If analysts set aside the demand for natural gas as a transportation fuel, Tudor said it would take between two and four years for the natural gas market to rebalance itself.

At the moment, most producers want around $3.50 per million British thermal units before they are willing to sell a producing asset.

“The vast majority of drilling at current levels is not economical. We would think and hope that the gas rig count would continue to come down,” he says.

The unusual mixture of strong crude and low natural gas prices is having a mixed effect on the market for mergers and acquisitions. “It’s a tale of two cities. Anything related to oil and liquids is very attractive right now,” he said.

Those oil and liquids plays continue to attract a lot of interest in potential buyers and investors. “There is a lot of demand from buyers. There are emerging liquids and oil plays across a multitude of basins across North America. It’s just a very healthy market in every regard,” he said.

The number of mergers and acquisitions in dry gas areas has been anemic because of the weak prices for natural gas. Despite the recent increase in natural gas prices, when the price of dry gas rose from their 10-year lows, there were very few potential buyers in the sector, and he expects that trend to continue for the foreseeable future.

“We don’t expect much activity over the next year,” he said of dry gas.

In dry gas areas, the potential sellers aren’t willing to sell unless the implied price of the gas in the ground is valued around $4 per million British thermal units (MMbtu), and potential buyers are unwilling to pay anywhere close to that, he said.

“You have a standoff in the (dry) gas market,” he said.

Tudor Pickering Holt & Co. expects natural gas prices to remain low for the foreseeable future in part because the majors continue to produce it despite current prices. “If they continue to run rigs and produce aggressively we will continue to have too much gas supply for awhile,” he said. Meanwhile, the independent producers have reduced production in response to weak natural gas prices.

Although natural gas producers lament the current price structure for the commodity, for the rest of the country, this is not a tragedy. A low natural gas economy is actually a big dividend to the U.S. economy. Petrochemical and fertilizer producers use natural gas as a feedstock and a growing number of electricity generators also use it to provide their respective services, he said.

“The only people who want higher gas prices are the producers of natural gas. The rest of the country has an interest in keeping them low,” Tudor said.

Technology Driven

Floyd Wilson, chairman and chief executive officer Halcon Resources Corp., said the development of new technologies has largely fueled the recent boom in unconventional plays, despite struggling gas prices.

Currently, Halcon Resources has more than 500,000 acres on several plays throughout the U.S. Wilson said one of the keys to success in the energy industry is to know when to acquire acreage without paying too much for it. To meet both these tasks, he said it’s important to hire highly trained people who know how to harness effective technologies.

The resource plays that Halcon Resources focuses on require adequate geosciences and engineering. “You make your money drilling in these plays. You don’t make your money trading,” he said.

A highly trained staff allows a company to respond quickly to changing market dynamics, he said. “A business plan is a very mobile thing. It changes with commodity prices and with demand and supply. You need to stay prepared for the next curve ball,” he said.

Wilson said that one of the challenges in developing unconventional plays is that the infrastructure in the area is often unsuitable for modern production.