$50 Oil Not Enough for US Shale Oil Comeback, Needs to Hit $75/bbl: Ward

Tapstone Energy chief says drillers need to outspend cash flow to increase production, but capital markets are essentially closed to them.

With crude benchmarks in the high $40's last week, Tom Ward, co-founder of Chesapeake Energy, Friday exploded what has become a widely-held assumption that $50 oil will inspire moribund U.S. shale producers to resume activities and possibly cause a retaliatory hike in Middle East production, thus ruining a fragile market recovery and sinking bunker prices along with it.

Talking on CNBC's Squawk Box, Ward said oil has to reach about $75 per barrel before most drillers ramp up production.

Ward, who is now chairman and CEO of Tapstone Energy, explained that drillers need to outspend cash flow to increase production, but capital markets are essentially closed to them:  "In our business, the dirty little secret is you can't really spend within cash flow and grow production."

He also pointed out that "Whenever you make a decision to stop drilling, it takes a number of months or years in order for that decision to actually impact the market."

U.S. oil production has dropped from nearly 9.7 million barrels per day (bpd) last year to about 8.8 million bpd, and Wood Mackenzie data shows that U.S. oil and gas companies deferred a total of $380 billion in capital projects through the end of 2015 due to low oil prices.

Ward's remarks spectacularly contradict a variety of respected opinions on what it will take to re-energize the American shale industry; they also seem to challenge claims made in March by  Continental Resources Inc. and Whiting Petroleum Corp., both of whom rescinded their earlier projection of $60-plus oil being the threshold for taking action and declaring they would increase spending if prices reached the low to mid-$40 range.