Canada Backs US Oil Assets With $1 Billion Buy In Amid Warnings of Imminent Shale Crash

by Ship & Bunker News Team
Thursday June 29, 2017

Yet more evidence that U.S. shale is a global force to be reckoned with came Wednesday with news that the Canada Pension Plan Investment Board will commit up to $1 billion to buy oil and gas producing assets south of the 49th parallel - despite another round of predictions from critics that the shale boom will soon be over.

CPPIB, which invests on behalf of the Canada Pension Plan announced that it and Encino Energy LLC, under Encino Acquisition Partners, will purchase "large, high quality assets" with established production in mature U.S. basins.

Avik Dey, head of natural resources for the CPPIB, said the partnership was formed due to Encino's operational experience and proven track record of asset acquisition (the private company, formed in 2011, has pledged $25 million to the partnership; it is focused mainly on the Anadarko Basin of Texas and Oklahoma).

But as far as Phil Flynn, senior market analyst at Price Futures Group Inc., is concerned, U.S. shale is heading directly for the rocks: "We're losing investment in the energy industry; it's taking its toll," he stated in a webinar this week.

Flynn cited a year-old report from Wood Mackenzie forecasting that global energy exploration and production capital expenditures are expected to fall by 22 percent, or $740 billion, between 2015 and 2020 - and that doesn't include cuts to conventional exploration investment, which would push the figure to over $1 billion.

Flynn went on to note that although shale production is climbing, growth is slowing; a production crash is "starting now," he said, adding that "it will become more clear in a few months."

Flynn is also of the mindset that oil prices will rebound during the second half of the year, which runs contrary to many analytical forecasts that focus on fundamentals.

However, it's difficult to foresee shale running into any major impediments, if based solely on the sheer breadth of growth it has achieved: BloombergBusinessweek points out that oil exports from the U.S. have risen 1,600 percent in four short years, earning the nation the title of "a new major oil exporter on the world stage."

U.S. exports in the first three months of 2017 also exceeded those of five of the 14 members of the Organization of Petroleum Exporting Countries, according to Lloyd's Apex, and its current power is such that Russia and Venezuela have suggested it consider some form of production coordination.

Plus, if there's one thing about U.S. shale, it is that it has consistently been misunderstood and underestimated by even the most erudite of experts: this much was conceded recently by Edward Bell, oil analyst at Emirates NBD PJSC, who remarked, "There appears to be no topside limit to production in the U.S., or at least it hasn't been discovered yet."