• 4 minutes Oil Price Editorial: Beware Of Saudi Oil Tanker Sabotage Stories
  • 7 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 11 minutes Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 14 minutes Wonders of Shale- Gas,bringing investments and jobs to the US
  • 41 mins Evil Awakens: Fascist Symbols And Rhetoric On Rise In Italian EU Vote
  • 46 mins Theresa May to Step Down
  • 4 hours Old - New Kim: Nuclear Negotiations With U. S. Will Never Resume Unless Washington Changes Its Position
  • 8 mins IMO 2020 could create fierce competition for scarce water resources
  • 29 mins Is $60/Bbl WTI still considered a break even for Shale Oil
  • 3 hours India After Elections: Economy And Hindu Are The First Modi’s Challenges
  • 14 mins IMO2020 To scrub or not to scrub
  • 5 hours Total nonsense in climate debate
  • 2 hours Apple Boycott in China
  • 1 min Devastating Sanctions: Iran and Venezuela hurting
  • 11 hours Level-Headed Analysis of the Future of U.S. Shale Oil Industry
  • 13 hours Apartheid Is Still There: Post-apartheid South Africa Is World’s Most Unequal Country
  • 227 days Epic Fail as Solar Crashes and Wind Refuses to Blow
  • 2 hours Compensation For A Trade War: Argentina’s Financial Crisis Creates An Opportunity For China

Shale Drillers To Lose At Sub-$50 Oil

Midland

Shale oil and gas producers need WTI prices at least US$50 oil to be able to see significant returns, analysts from Moody’s said in a research note today. For natural gas, the minimum price level to ensure reasonable profitability is US$3 per MMBtu, the analysts said.

The team studied the capital efficiency indicators of 37 shale drillers, focusing on operating cash margins and the costs associated with finding and developing oil and gas resources.

Over the first eight months of the year, WTI averaged US$49.34 a barrel, while the Henry Hub price per MMBtu of natural gas was US$3. Even though WTI prices are now above US$50 a barrel, the latest price forecast from the Energy Department sees the average for this year at US$48.83 and the average for 2018 at US$49.58.

While the Moody’s analysts acknowledged the progress that shale oil and gas producers have made in reducing their production costs, they argue that there isn’t much space left to further reduce these costs. What’s more, any additional cost reduction is more likely than not to be offset by the higher prices that oilfield service providers are now charging for their services amid the higher oil prices.

The research note suggests that the hard times are not over for many shale drillers. In his report on the note, CNBC’s Tom DiChristopher notes the substantial debt load of shale drillers, and how low breakeven levels are an insufficient indicator of profitability for the very simple reason that breakeven and profit are two different things.

As the Moody’s researchers put it, E&Ps in the shale patch, like other producers, need to be able to "recover their costs, earn a meaningful return on their investments, reinvest in further development of their acreage, repay debt and reward shareholders for the risk and cyclicality associated with the industry."

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:



Join the discussion | Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News