HOUSTON—The impact of lower prices in oil and gas has presented both challenges and opportunities for oil and gas companies when it comes to making real estate decisions. At this week’s Jones Lang LaSalle’s (JLL) recent Energy Outlook presentation, speakers examined how each sector has fared and struggled while in recovery mode and the implications for the future.

The midstream and upstream sectors have navigated the price environment differently. While midstream companies have significantly bounced back with promising growth going forward, upstream companies have struggled to survive, according to JLL. As a result, both sectors have moved at different paces in regards to acquiring real estate.

For producers, it has been a slow return while prices continue to hover around $50 per barrel (bbl). These companies have had to streamline operations in order to survive due to it being the most negatively impacted compared to midstream and downstream, according to Rachel Alexander, research manager at JLL.

“Companies [are] restructuring lease agreements, putting space on the sublease market in an effort to right-size and streamline though new subleases being added are slowing dramatically,” Alexander said.

JLL’s international director, Bruce Rutherford, detailed how cost cuts and failing revenue since 2014 have resulted in “energy tenants downsizing significantly, exploring mergers and acquisitions (M&A) options, and releasing record amounts of sublease space into property markets” throughout North America. He added that in Houston those actions have manifested 12.2 million square feet of unabsorbed sublease space.

Rutherford said oilfield service companies were among the hardest hit by the downturn, but new technology has slowly improved market conditions enabling the “breakeven price to fall below the price of oil, which has resulted in a year-over-year rise in rig counts,” allowing these companies to add more jobs.

Upstream companies have recovered by improving efficiency and capitalizing on production in North American shale formations, and are expected to continue to alter strategies to best weather future turbulence, he said.

A lower-oil-price environment, regulatory scrutiny and uncertainty over pipeline development in North America have been hurdles for the midstream sector, Rutherford said. Despite that, midstream has remained healthy, even experiencing growth from LNG export and petrochemical markets, he added.

Midstream companies have even found new opportunities from emerging production in basins like Powder River in Wyoming and Marcellus shale play in Pennsylvania, which require supporting infrastructure, Rutherford said.

“Midstream has been largely unaffected by the downturn, they’re experiencing growth through the rising global demand for American oil and gas, which is increasing year after year,” Alexander said.

Since the downturn many companies have focused on gaining scale and synergies as the top midstream firms in North America explore M&A options, Rutherford said.

From JLL’s findings, midstream companies haven’t made rash decisions within commercial real estate. JLL found that either those companies are downsizing to accommodate finances or have maintained the same occupancy since the shale boom, a notable difference when compared to upstream’s decisions.

Rutherford predicts that midstream companies will continue to expand their networks through rising opportunities and remain resilient to the effects of the downturn.

Overall, Alexander and Rutherford predicted that upstream companies will have to continue to wait for the price of oil to recover in order to be better off in both the industry and real estate marketplace. As for midstream, opportunities created from oil and gas demand will continue to drive this sector upward.

JLL’s speakers also predicted that the petrochemical boom will likely give rise to construction and provide a shot to not only local economies, but the energy industry as a whole.

Mary Holcomb can be reached at mholcomb@hartenergy.com