DENVER ─ The question isn’t so much will the industry recover, but rather, when will it recover from the oil price crash?

“We see more near-term pain but longer-term, optimism. We really see supply coming back in balance with demand in the fourth quarter of this year. No other region has the ability to ramp up supply as fast as the U.S.,” said Jeff Knupp, director, investment banking for Tudor, Pickering, Holt & Co. in Houston.

During Hart Energy’s recent DUG Bakken Conference, Knupp talked about A&D trends and market expectations.

“We don’t see that U.S. production growth we’ve had of 1 million bbl/d again until you hit $60, before producers are willing to jump out. We also have to see inventories stop building and start to decline,” he said.

“If in the future we are going to see oil prices recover, then we’d also forecast service costs coming back up—these 30% reductions can’t last forever. If oil comes back up, you’ll see service costs start to go back up too.”

Ironically, while most E&P equity values are down by 30% to 50% since the oil price plunge began, E&P companies have successfully closed on a record number of equity and debt offerings, with at least $11 billion raised in the first quarter, a pace that most people think is not sustainable. In addition, private equity providers are armed and ready with an estimated $50 to $65 billion in hand, Knupp said.

Perhaps the one downside? This ready availability of capital has caused the A&D marketplace to remain stalled—not to mention the lingering gap between buyer and seller price expectations.

“We expect the sellers to start being more willing to sell assets in the next couple of quarters. Even at $70/bbl, many of these E&P companies have 3X or more of debt to equity.

“The A&D market has had a great run,” Knupp said, citing 85 deals in 2008, 110 in 2013 and 120 in 2014, a near record year—but only in the first ten months before the oil price started to plummet.

“Right now buyers are ready, but sellers are not. Deal volume in 2015 is nowhere near where we’d like it to be. Given that we don’t see many transactions occurring, we don’t know what the A&D market is thinking [about valuations], but the public markets have been very instructive and seem optimistic.”

Although the price of oil is down by about 50%, equity valuations have not dropped as much, he said. A large number of company values, as indicated by analysts, have declined by much less. The investment community has been using a price deck above strip prices on Nymex, with valuations for Permian Basin-focused equities down 17% and down 24% for diversified large-cap companies. Median price targets are down more, however, by 54%, for Bakken Shale players, he said.

These regional variations factor in how investors value companies and assets, based on analysts’ price targets, and it has more to do with public perception than facts on the ground, Knupp said.

The market is sending mixed signals on the oil price outlook. The long-term strip on Nymex is about $60/bbl, but the analysts’ consensus is in the mid-$70s, and Tudor, Pickering’s analyst team thinks oil will recover to $80/bbl in first-half 2016.

The outlook for A&D activity remains cautious as most people remain uncertain about an oil price recovery. Knupp said Tudor, Pickering conducted an informal survey of the business development community in February, and 63% of respondents said they believed oil would recover to a price lower than $70/bbl a year from now.

Meanwhile, drilling and completion costs are coming down, Knupp said. For every 10% cost reduction, the breakeven price goes down by $3 to $6/bbl, depending on the play, he said.