Falling prices are hitting US shale oil producers
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With the benchmark West Texas Intermediate (WTI) trading briefly below the $US50-per-barrel floor at the beginning of this month, questions are being raised again about whether US shale oil producers can ride out the continued uncertainty in global markets.
Oil prices have been hammered by the coronavirus outbreak in China, which has slashed demand from the world’s largest oil importer.
S&P Global Platts estimates the virus could reduce oil demand by 4 per cent, or 4.1 million barrels per day, in February.
And while China only buys a small amount of oil from the US – phase-one trade deal notwithstanding – oil is a global commodity with benchmark prices affected by the wider market.
This fall in oil prices is hitting US shale oil producers where it hurts the hardest because while more traditional producers globally are looking at having their profits trimmed, the shale oil breakeven price is as high $US45 a barrel.
And there is no rescue coming from OPEC.
Saudi Arabia’s plan to further production cuts in a bid to cushion the blow has apparently been torpedoed by Russia, with CNN reporting that Russia said it needed more time to weigh recommendations from OPEC’s technical committee and assess the impact of the coronavirus on the market.
Concerns have also been raised that shale oil is reaching its peak, with a growing number of analysts flagging this possibility.
Indeed, major shale oil producer Hess Corporation has flagged that production in Bakken shale could peak within the next two years while the Permian will peak in the mid-2020s.
The news is unlikely to be welcome by the ASX juniors operating in the US shale oil space.
While 88 Energy (ASX:88E) has interests in the HRZ shale in Alaska, the company has been cushioned by the upcoming drilling of the Charlie-1 appraisal well that will be funded by Premier Oil up to $US23m.
Brookside Energy (ASX:BRK) is working towards improving the performance of its Anadarko Basin shale assets.
The company noted in its quarterly that sustained production from its Bullard well and several SWISH wells point to higher forecast recovered volumes, short pay-out periods and higher per-acre values.
In the Powder River Basin, Eon NRG (ASX:E2E) is recovering fracture stimulation fluids from its Govt Kaehne #9-29 well.
The company reported average production of 410 barrels of oil equivalent per day in the fourth quarter of 2019.
Fremont Petroleum (ASX:FPL) recently agreed on terms to acquire a 6,000 acre oil and gas project that is contiguous with its Pathfinder field.
Permitting is also underway for the drilling of five wells at Pathfinder.