Low Oil Prices to Slow, but Not Derail US Shale Boom

If oil prices are still at $70/barrel in six months, corporate strategies will begin to shift away from volume strategy to value strategy.

“Companies will come out of the growth-at-all-costs mode and begin looking for real value in the portfolios,” said Dukes. “Companies will seek to drive down costs and improve productivity, and try and remain within their cash flow limits or the funding sources available through today’s capital markets, which are now tighter than they were a few months ago.”

Still, Dukes said Wood Mackenzie is advising clients not to make business decisions based on the hypothesis that the United States will be less important in the energy market going forward.

“There are still parts of the Bakken and the Eagle Ford that are making money today and can at lower oil prices,” said Dukes. “The industry won’t flourish like it has if prices stay low, but we don’t see a scenario where development stops.”

Going forward, a company’s success in a shale play won’t hinge solely on it being positioned in a sweet spot, but on the company’s operational efficiency as well. Emerging shale plays like the Springer shale won’t go away, but Wood Mackenzie anticipates seeing limited activity in emerging shale plays. The first thing to get cut from budgets is typically exploration or frontier drilling, and companies facing a capital crunch will focus spending on where they know they can make money, Dukes said.


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John Benton  |  December 19, 2014
We seem to be lying to ourselves, as usual. The crude price cut is going to be more severe, the damage to intermediate and small producers and drillers much more severe, and Houston is probably headed for a recession.


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