With volatile front-end oil prices, an escalating conflict in the Middle East, and a closing window on favorable antitrust conditions, the upstream energy market is navigating a complex set of conditions heading into the second half of 2026. Yet dealmaking has not slowed. If anything, it has accelerated.
Conrad Gibbins, Co-Head of the Upstream Group at Jefferies, sat down at the firm’s annual Energy & Power Summit to share his views on oil price dynamics, the structural forces driving M&A activity, and the emergence of a new class of buyer reshaping how upstream deals get done.
A Tale of Two Curves
Gibbins opened with a distinction that cuts through much of the current market noise: the difference between front-end and back-end oil prices. “The forward curve for the current month is $100 plus right now,” he noted, “but if you look at the five-year strip, it’s averaging $69 a barrel.” His view is that the front end will ease while the back end drifts higher, a re-rating that has significant implications for how deals are valued.
On the geopolitical situation, Gibbins was measured but clear-eyed. “It feels like there’s more downside skew in terms of the geopolitical tension blowing out further than it resolving itself within a short period of time.” He pointed to Iraq as particularly exposed. Unlike Saudi Arabia, which is building out an east-to-west Red Sea pipeline, Iraq has no viable route to market outside the Strait of Hormuz without paying a transit tariff to Saudi Arabia.
One longer-term consequence he flagged is the drawdown of strategic petroleum reserves globally. Governments are effectively borrowing barrels from the future to subsidize today’s market, creating incremental demand that will need to be met when those reserves are eventually refilled.
The conflict is also reshaping trade flows in ways that benefit U.S. producers. Japanese and Korean vessels, previously large buyers of Middle Eastern barrels, are being restricted from transiting the strait. “They probably go more to the U.S.,” Gibbins said. “Equally, I think European buyers go more to the U.S.” The result is a growing premium for geopolitically safe barrels and U.S. production sits squarely in that category.
M&A: Strong Tailwinds, Resilient Processes
Despite the volatility in today’s prices, Gibbins reported that upstream M&A activity remains robust. The key reason is that long-term valuations, driven by discounted cash flows over a five-year horizon, have moved far less than day-to-day spot prices. “While there’s been an immense amount of volatility in the front end of the curve, the back end is only up 10 or 12% over the last month,” he explained. “That’s what really drives valuations.”
The more striking development is that sellers are accelerating, not retreating. “We’re getting people that weren’t thinking about selling for another six, twelve or eighteen months trying to accelerate things into this market,” Gibbins said. The reason is a combination of improved free cash margins (a 10-12% revenue increase can translate to a 20% improvement in net free cash flow), supportive capital markets, and a scarcity of high-quality assets that is intensifying competition among buyers.
Private equity remains the most consistent seller, looking to realise returns on investments made in prior cycles, but larger independents are also selling non-core assets and pruning their portfolios. On the buy side, the universe has broadened meaningfully. Public mid- and small-cap companies are active, as is private equity deploying freshly raised capital. But the most significant structural development, in Gibbins’ view, is the emergence of the asset-backed securities buyer.
“The ABS market has gone from being this esoteric, wonky product to now being a very mainstream part of essentially every sell-side process we run,” he said. ABS financing offers investment-grade, lower-cost capital at attractive loan-to-value rates, tightening the cost of capital for buyers and compressing returns further into seller-friendly territory. “You’ve got cost of capital tightening, improved commodity prices, and a larger buyer universe than maybe you had just a couple of years ago.”
A Window for Mega-Deals
Gibbins also flagged the current antitrust environment as a catalyst for larger transactions. Under the current administration, deals that might previously have raised competition concerns are more likely to receive regulatory clearance. “That may not be there in two years,” he noted, expressing confidence that at least one or two multi-tens-of-billions-of-dollars transactions will get done before that window closes.
On Venezuela, Gibbins was pragmatic. The country’s production could rise from around 800,000 barrels per day today to as much as 1.1 million over the next 12 months, and its reserves are significant. But trepidation among international investors remains high, and the investment required to meaningfully lift productive capacity is substantial. At less than 1% of global supply today, Venezuela is unlikely to shift the needle materially for U.S. operators in the near term.
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The upstream sector enters this period of volatility from a position of structural strength. Capital markets are open, buyer competition is intensifying, and the geopolitical premium on domestically produced barrels is growing. “There’s general enthusiasm for the industry we haven’t felt in years,” Gibbins said. “The pendulum feels like it’s really swung back to real energy.”
For more insights from Conrad Gibbins and Jefferies, the leading advisor on M&A transactions in the energy sector, visit the firm’s dedicated thought leadership site.
