for Shale Oil Producers
Oil majors continue to ratchet up activity in U.S. shale, even as other producers cut back.
Making a profit in the shale patch has been an uphill battle to begin with for many companies, but the latest crash in crude prices makes that task much more difficult. Bankruptcies could begin to rise if oil prices fail to rebound.
Shale executives have repeatedly proclaimed their commitment to capital discipline, promising not to return to profligate spending in pursuit of growth at all costs. But output is growing sharply, poised to reach 12 Mbd in 2019.
The oil industry continues to struggle despite prices rising and expectations for strong earnings reports. Energy stocks in the S&P 500 declined by 6.6 percent in the first quarter.
The divergence in shale forecasts stems from differences over macroeconomic assumptions, price expectations, the supply chain outlook, and productivity projections.
The oil majors are expected to post $80 billion in organic free cash flow in 2018, but spending is expected to be modest.
Under the border-adjustment tax, U.S. oil would be exempted from taxes if it is exported abroad, making it much more competitive. The tax, however, will have difficulty passing in Congress since it would also likely raise pump prices.
While this past weekend’s earthquake in Oklahoma will not likely bring drilling to a halt, it could usher in a new era of heightened oversight on fracking in a state that has seen increasing investment from shale companies in recent years.
Hedge fund sentiment in the oil markets has turned considerably bearish as of late. While it may be premature to say prices have already peaked for the year, a sustained bull run for the rest of 2016 appears less and less likely.
Two major executives this past week gave differing views on this year's election. Continental's Harold Hamm spoke at the RNC in favor of Donald Trump, while Pioneer's CEO noted how the industry has performed better under Democratic administrations.