Saudi-Russian price war may prompt shale activity cuts

摘要

As the recent price spat between the two countries have caused WTI to fall 25% to $31.13/bbl on Match 9 before rebounding slighdy to $33.73/bbl on March 10,shale companies in the US will find it increasingly difficult to achieve a profit.The following table compares breakeven prices to achieve 10% and 30% profit in the Bakken and Eagle Ford plays and Permian Basin.Because shale wells decline faster than conventional wells,companies must constantly be dulling in older to maintain output,which in turn will result in negative returns under the current price environment.Former hedge fund manager and founder of Friezo Loughrey Oil Well Partners LLC Tom Loughrey said,”companies should not be burning capital to be keeping the production base at an unsustainable level.This is swing production-and that means you’re going to have to swing down.”According to BloombergNEF,producers will likely shift focus away from breakeven costs and instead to cash flow.BloombergNEF also predicts that the profitability price floor for wells will increase to %50/bbl”in the not too distant future,",compared to $45/bbl previously.Rystad Energy predicts that production could fall by 2MM b/d,or 20%,over 2021 as producers cut drilling activity.