Kemp: US Shale Sector At Critical Price Threshold

Kemp: US Shale Sector At Critical Price Threshold
Forward US oil prices for 2018 have climbed back above $50 per barrel, a level that should be high enough to stabilize drilling activity over the next two months.

But the renewed rise in the calendar strip since late June and early July suggests concerns about overproduction are receding.

On average, the breakeven price for the U.S. shale sector appears to be around $50 and this has proved to be the dividing line between expanding activity and a contraction.

Harold Hamm, chief executive of Continental Resources, one of the largest shale oil producers in North Dakota and Oklahoma, has said prices need to be above $50 to be sustainable.

The calendar strip has recently climbed above this threshold and is currently trading around $51, the highest since May.

Higher forward prices will enable shale producers to lock in more production next year at values that guarantee profitability.

What happens next to prices is critical. If the current level of WTI forward prices is sustained, it should allow the rig count to steady and support moderate growth in U.S. shale output next year.

If prices continue to increase towards $55, however, shale firms are likely to drop their focus on consolidation and dust off ambitious growth plans for 2018.

(Editing by Dale Hudson)


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just some geo  |  September 19, 2017
What I would find interesting is an analysis of depletion rates in the shale oil plays. From what I can tell the Bakken is pretty much drilled out and water/gas cut increasing. Basically the Bakken taps cannot be opened any further. It looks like the Permian basin is heading that way too. This is what happens if you drill all the sweet spots when prices head south, you cant replace lost production. If this is truly the case then US production will plateau fairly soon and then drop off. When this happens, prices will head north and we can all go back to work. It would make a good article. Theres a lot of info out there.

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