The Shale Price Band

[Marina Schwarz + 1,576]

Sooo, the man who coined the term "shale price band" argues it's still going strong and shale boomers can thrive in $40 per barrel environment. Goldman's Currie begs to differ. Who do we believe?

[DanilKa + 443]

US is a net importer of oil and one of the largest energy consumers. A lot of goods getting trucked - expectations of fuel price-driven CPI increase (aka inflation) were palpable. Before the crush... 

Sure, there are good operators out there making positive cash flow (hedging helps, so as not paying $100K/acre) but on average much higher oil price is required to balance the books/pay the debt and $40 won’t make it. Unrealistic EUR projections and accounting trickery used, if you ask me. 

That is not to say shale won’t be able to pump out more crude - just not at a sustainable profit and higher production goes, further and faster it would plummet. Bad news for Goldman - many billions of credit will be wiped out clean and who knows what derivatives are riding on it... 

Edited November 29, 2018 by DanilKa
Added graphs

[Guillaume Albasini + 851]

3 hours ago, Marina Schwarz said:

Sooo, the man who coined the term "shale price band" argues it's still going strong and shale boomers can thrive in $40 per barrel environment. Goldman's Currie begs to differ. Who do we believe?

There is a shale band but it's not so easy to set the upper and lower limit of the band. There is a high level of uncertainty on where the real break even of shale oil is as it is widely different from one spot to another.

My guess is that the easiest shale plays are exploited first then shale producers are moving to less productive wells and that could rise the break even. So the lower limit of the shale band could rise with time.

We also know that heavy debts where accumulated by shale producers to survive the former low oil price years and I don't think this scheme can be repeated forever.

I agree with the shale band theory but I think the shale band lower limit may be higher than $40. So the Stifel forecast could have some truth :

On Sunday, brokerage and investment firm Stifel slashed its 2019 price forecast for U.S. crude by 27 percent to $53.73. If that forecast bears out, Stifel says the 39 oil and gas companies it covers will have to find a way to fill a $8.2 billion cash flow deficit next year. Prior to its revised forecast, Stifel saw the companies generating $16.1 billion in positive free cash flow.