Americas News
U.S. Producers Galvanized by $50 Oil as Respected Analyst Says Price Will Climb to $80 Next Year
Experts differ on what oil price point it will take for the U.S. shale industry to revitalize, but even though the Organization of the Petroleum Exporting Countries (OPEC) members have done their utmost to marginalize them by flooding the market, Reuters reveals that no U.S. producer pumping over 100,000 barrels per day (bpd) has gone bankrupt.
The agency adds that the survival of these producers "partly explains why overall U.S. production has slipped only about 10 percent since peaking at 9.69 million bpd."
Even though Tom Ward, co-founder of Chesapeake Energy, has argued that oil has to reach about $75 per barrel before most drillers ramp up production, the sector is showing increasing signs of vitality, with acquisition activity picking up in recent weeks: Devon Energy Corp is finding buyers for more than $2 billion in non-core assets and will use some of that money to boost its capital budget by $200 million.
WPX Energy Inc. sold 45 million new shares earlier this month and is planning to use the funds to drill new Texas wells; and other companies are reportedly moving ahead in the Bakken, Eagle Ford, and Permian shale fields.
Still, some companies agree with Ward that a better market is required to ramp up drilling and investment: Greg Hill, chief operating officer at Hess, pegs the price point at $60 per barrel, even though he concedes his company could add rigs and be profitable at $40: "We need to see a period of stability in prices; we need to make sure it's not quicksand."
Presumably, producers in Hill's camp are therefore buoyed by the most recent prediction of J. Marshall Adkins, who in a note to clients raised his target price of oil to an average of $80 next year.
Adkins, who is one of the few analysts who correctly foresaw the 2016 oil price rally, also believes that the efficiency of U.S. shale producers will cause prices to average $70 for WTI and $75 for Brent in 2019 and beyond
He wrote, "Given the U.S. shale industry's ability to post steady cost efficiency gains, our bias would be that, over time, oil prices move lower (or the futures curve becomes backward-dated starting in mid-2017).
"This US $70 price deck should support sufficient long-term U.S. oil supply growth to offset slowly rising global oil demand and falling non-U.S. oil supply."
American shale producers have consistently surprised OPEC members with their resiliency: in April, despite over 50 North American oil and gas producers filing for bankruptcy since early 2015, Reuters found that this has had negligible effect on U.S. production, with beleaguered drillers pumping harder than ever.
