There’s an app available for iPhones that’s popular in Japan. It alerts you seconds to minutes in advance of an earthquake. That’s the sort of app that A&D professionals would find enormously interesting, presuming one could be built to warn of seismic shifts in commodity prices.

Gyrating oil, sagging NGL and rock-bottom natural gas prices have combined to depress 2012’s deal market. “This year, we’ve had $40 billion in E&P asset sales,” said Scott Richardson, co-founding principal, RBC Richardson Barr, who participated in a roundtable discussion at Hart Energy’s 11th Annual A&D Strategies and Opportunities Conference. “A normal year is $60 billion.”

Activity should surge in the fourth-quarter, however, with more than $20 billion in deals expected. The main driver for this action will be private companies selling assets in anticipation of much higher tax rates in 2013. In addition private-equity firms will be making deals in oil resource plays, and public companies will continue divesting dry-gas properties.

Tremors in oil prices are being closely watched. Most resource plays need around $75 a barrel to generate attractive returns, and as long as oil is in the $80-plus range transactions will continue. Below $70 a barrel, people begin to obsess about losing money.

The recent fluctuations in oil prices have definitely made people nervous, said Lisa Stewart, chief executive officer, Sheridan Production Partners. “Buyers and sellers like stability. When we get these price shocks, people do worry more. Psychology matters.”

Indeed, people appear to have split into two camps: Some see the price shocks as warning signs that oil prices will revert to a lower level due to growing supplies and the global potential for unconventional production. The other group looks at the world’s shaky economic picture and sees oil in the ground as a preferred, premium investment, noted Maynard Holt, co-president, head of E&P investment banking, Tudor Pickering Holt & Co.

“What is really interesting now are oil differentials,” said Richardson. Crudes produced in such regions as California and East Texas have $5- to $10-per-barrel premiums to WTI, and these variances are hard to quantify. “How buyers price their forward-looking differentials are creating a pretty good variety in bids.”

As wobbly as oil futures may be, shuddering NGL prices is also eroding value. “There is still the capacity to sell NGLs,” says Stewart. “The problem is we now are running at all-time lows compared to WTI.” For producers, it’s not a devastating story because NGLs still enhance the value of gas production. “The bigger problem for buyers of assets is the lack of ability to hedge those NGLs going forward. Valuations have been coming down and may or may not be attractive to the seller,” said Stewart.

Already, valuations have fallen in recent Granite Wash transactions, noted Richardson. Liquids transactions coming to market closer to Mont Belvieu are doing better than those near Conway.

Interestingly, dry-gas deals are a stabilizing factor in the market. Dry-gas properties are coming to the market from public companies, as these firms don’t want to issue equity and it’s tougher to do joint ventures now than in the past. All year, the dry-gas deals have sold, and the buyers have been private equity or MLPs. “There is a lot of private equity aggressively looking for dry gas,” said Richardson. “They see an opportunity to pay a PDP-type of valuation, hedge it, and then when gas prices come up they can generate a 20% rate of return.”

Buyers with long-term views can buy an asset for PDP value that has drilling potential at a higher price. If they can hold it long enough, the value that is created can be significant, agreed Stewart.

“There’s a lot of financial money that senses this is a good time to buy,” said Holt. There are also manufacturing, chemical and international players that have made investment decisions based on the assumption that Lower 48 gas will be cheap for a long time, and they are interested in protecting those investments. “We see long-term oriented buyers in the dry-gas space, and it’s really unique because it attracts some of the least typical buyers. It is wildly different than when you are talking about selling something more traditional and more oily, such as in the Bakken or Permian.”

Contact the author, Peggy Williams, at pwilliams@hartenergy.com.