Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

U.S. Shale Oil Cash Flow Is Now Neutral

Commodities / Shale Oil and Gas Dec 22, 2016 - 03:44 PM GMT

By: OilPrice_Com

Commodities

Oil prices are probably already high enough to spark a rebound in shale production.

The IEA says that in the third quarter of 2016, the U.S. shale industry became cash flow neutral for the first time ever. That isn’t a typo. For years, the drilling boom was done with a lot of debt, and the revenues earned from steadily higher levels of output were not enough to cover the cost of drilling, even when oil prices traded above $100 per barrel in the go-go drilling days between 2011 and 2014. Even when U.S. oil production hit a peak at 9.7 million barrels per day in the second quarter of 2015, the industry did not break even. Indeed, shale companies were coming off of one of their worst quarters in terms of cash flow in recent history.


That all changed around the middle of 2015 when the most indebted and high-cost producers went out of business and consolidation began to take hold. E&P companies began cutting costs, laying off workers, squeezing their suppliers and deferring projects that no longer made sense.

By 2016, oil companies large and small had shed a lot of that extra fat, running leaner than at any point in the last few years. By the third quarter, oil prices had climbed back to above $40 and traded at around $50 per barrel for some time, replenishing some lost revenue. That was enough to make the industry cash flow neutral for the first time in its history.

That suggests that moving forward, the shale industry could move into cash flow positive territory. Oil prices seem to be trading safely above $50 per barrel for the time being, and OPEC cuts could induce more price gains. The industry is now focusing on shale plays that have lower breakeven prices, namely, the Permian Basin and some parts of the Bakken. That has companies like Concho Resources, Murphy Oil, Devon Energy, Pioneer Natural Resources and EOG Resources all stepping up their spending levels heading into 2017.

Wood Mackenzie suggests that $55 per barrel is a sweet spot for the oil and gas industry to rebound, a level that is only slightly above today’s prices. At $55 per barrel, the shale industry is cash flow positive and will grow accordingly. "If we stay (at $55 a barrel), the world's biggest oil companies start to make money again. If we go back down to $50 (or lower) in 2017...then those companies are in the negative territory and they go back into survival mode where they have been in the last two years," Angus Rodger, WoodMac’s research director for upstream oil and gas, said in a report. He estimates that OPEC’s cuts could succeed in pushing oil prices sustainably up to $55 per barrel. Even taking into account some cheating, WoodMac concludes that a 75 percent compliance rate with the promised cuts would get the markets to that price level.

Still, the seeds of disappoint have already been sown – it is just a question of whether or not they will sprout. The U.S. dollar is at its strongest level in nearly a decade, which will weigh on global crude oil demand. Also, hedge funds and other money managers have staked out the most bullish position on oil futures in more than two years. That has succeeded in running up prices this month, but it also sets up the market for downside risk. Should data emerge in the coming months that some OPEC members are cheating, the net-long positions could unwind. Those liquidations tend to happen quickly, so a sharp fall in oil prices is not out of the question.

"If confidence around the compliance with cuts wavers, the market will necessarily correct lower, considering that it also faces the twin headwinds of resilient U.S. production and a stronger dollar environment as the Fed begins to hike rates," Harry Tchilinguirian, an analyst with BNP Paribas, told S&P Global Platts.

And while the financial markets present risk, the physical market is also up in the air. Of course, OPEC cheating is a possibility. But with U.S. shale producers already stepping up drilling, production could come back quicker than many expect. Weekly EIA data shows gains of nearly 300,000 bpd since the end of summer. On top of that, disrupted output from Libya and Nigeria – two countries not subjected to the OPEC cuts – could begin to come back. An oil tanker docked at Libya’s largest oil export terminal, Es Sider, this week, was the first tanker to load up Libyan oil from that terminal in more than two years. Libya hopes to add another 300,000 bpd in output in 2017 after adding as much in 2016.

Even with those negative risks in mind, the shale industry is getting back to work. If oil prices can stay roughly where they are right now, the industry could become cash flow positive for the first time ever next year.

http://oilprice.com/Energy/Energy-General/US-Shale-Is-Now-Cash-Flow-Neutral.html

By Nick Cunningham of Oilprice.com

© 2016 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules