Shale Wells 'Riding the Edge' of Profitability at Present Prices



Shale Wells 'Riding the Edge' of Profitability at Present Prices
U.S. shale oil plays are "riding the edge of profitability" at current prices and the industry faces a significant slowdown in fracking activity if crude falls below $50 a barrel for a sustained period.

(Bloomberg) -- U.S. shale oil plays are “riding the edge of profitability” at current prices and the industry faces a significant slowdown in fracking activity if crude falls below $50 a barrel for a sustained period, according to BloombergNEF.

The majority of American shale wells make money based on the $51.45 average futures price, or “strip,” for West Texas Intermediate crude over the next two years, BNEF analyst Tai Liu said in a report Thursday.

But he added that the historical floor price for U.S. oil of $45, which in the past has been based on so-called half-cycle drilling costs, is likely to rise to $50 as investors use different metrics.

“These firms are now being judged by their ability to generate free cash flow,” BNEF said of drilling companies. “Free cash flow sets a higher bar than half-cycle costs from a break-even perspective.“

To contact the reporter on this story:
Simon Casey in New York at scasey4@bloomberg.net

To contact the editors responsible for this story:
Simon Casey at scasey4@bloomberg.net
Carlos Caminada, Joe Carroll



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