Iran’s four‑week conflict has not derailed oil and gas deals, though sector advisers warn uncertainty could slow early‑stage sales and spur contingent‑payment structures.

The nearly 50% surge in crude prices is making oil and gas valuations harder to pin down. “In periods of high commodity price volatility, it becomes increasingly difficult to determine valuation and to land on a valuation where buyer and seller can agree and transact,” said J.P. Hanson, managing director and global head of Houlihan Lokey’s oil and gas group.

Despite ongoing valuation uncertainty, no major corporate sale processes have been pulled, an energy banker said at CERAWeek by S&P Global. Even so, buyers and sellers are proceeding cautiously amid uncertainty over when the closure of the Strait of Hormuz – a route for roughly 20% of global oil shipments – will end, the banker added.

Even if the Strait were to reopen tomorrow, it would take roughly eight months for ship traffic to fully recover, Jim Fitterling, chair and CEO of a global materials science company Dow, said during a CERAWeek panel.

“Sellers don’t want to leave value on the table,” said Hanson. Sellers are extending timeframes for bids in hope that commodity price volatility subsides, with processes with purchase and sale agreement negotiations not advanced slowing down, he added.

One group that is embracing the surge in crude prices is private equity. Stephen Trauber, managing director, chairman, and global head of Energy & Clean Technology at Moelis, said he is seeing more sponsor-backed oil and gas companies contemplating going to market sooner. “Those companies that [were] thinking about going later this year or early next year are now interviewing banks and thinking about going earlier.”

Sellers rushing to the market could secure more favorable terms from buyers keen to take over oil and gas assets and hedge them at USD 90 per-barrel prices instead of USD 60-per dollar prices, Hanson noted. “You can’t hedge production you don’t own yet. Therefore, in this period, buyers have shown more willingness to accept terms seemingly less favorable to them in order to get deals done and therefore put hedges on while prices are high,” he said.

Asset sales continue to advance, Trauber said. ConocoPhillips is proceeding with its planned divestitures in the Delaware Basin and Eagle Ford. This news service reported in March that the company mandated Jefferies to advise on the sale of two Delaware Basin assets and JPMorgan to run the sale for an Eagle Ford asset.

To overcome valuation uncertainty, deals will probably include mutual contingent payment elements, said Hanson. Unlike traditional contingent payments where a seller gets an additional payment if oil prices rise above a certain level post-closing, buyers are now asking for refund contingencies if today’s elevated oil prices fall.

To bridge the valuation gap, contingent payments constructs based on commodity price are being more frequently discussed, the structures of which are largely dependent on timing. For instance, buyers may agree to buy at a valuation that implies a more stable pre-Iran oil price of USD 65 [per barrel], but in order for sellers to transact, a contingent payment will at least recognize valuation under the current price environment, said Hanson.

“If prices stay elevated for an agreed period post-effective date, the buyer would give the seller a refund or otherwise split of the cash generated during that period,” he said. “Even majors are contemplating similar structures now because nobody can control commodity prices.”