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Is it time to buy oil and gas shares yet?

Is it time to buy oil and gas shares yet? Companies like Santos Ltd (ASX: STO), Woodside Petroleum Limited (ASX: WPL), and Beach Energy Ltd (ASX: BPT) are in the middle of a 3-year bear market, with oil languishing at close to decade lows:

source: Nasdaq

Oil and gas exploration and drilling activity has been cut right back at Australian companies, with some suggesting that this could lead to a looming shortage and price boom by the mid-2020s. That may be the case, but it is hard to see what could drive prices sustainably higher over the near term.

The US oil rig count has been rocketing, and is now consistently above 900 rigs, more than double 2015’s trough of 400 – although still half of the pre-price collapse peak of 1800 rigs.

Australian oil producers seem more interested in competing for Quadrant Energy, the upcoming IPO/divestment from Origin Energy Ltd (ASX: ORG). Reportedly both Beach Energy and Santos have been running the ruler over Quadrant, and it’s still not clear whether the business will be sold to the public via IPO, or sold to another company directly.

Still, one thing is certain – Australian oil and gas companies are more concerned about acquiring profitable oil wells and proven reserves than they are with drilling to find new oil and gas. That’s likely helping to set the stage for a commodity price rebound at some point – but that could be years away. In my opinion, investors without an edge in the oil and gas sector are better off looking elsewhere for now.

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Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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