En Español



Very usefull links



PW
Bookstore





News links

AP

AFP

Aljazeera

Dow Jones

Oil price

Reuters

Bloomberg

Views and News
from
Norway

 

 

 

 

Above $50 oil sands to pay off and it's a shale boom


Moody's report shows most producers not making enough cash. Study used measure known as leveraged full cycle ratio


By Carlos Caminada

CALGARY
Petroleumworld 09 29 2017

Shale drillers and oil sands producers have posted some healthy profits so far this year, but it'll take oil consistently above $50 a barrel for their investments to pay off in the long run.

That's the conclusion of a Moody's Investors Service study of 37 exploration and production companies in the U.S. and Canada released Thursday. It's also why legendary hedge fund manager Jim Chanos, who's shorting shale driller Continental Resources Inc. , says independent explorers have been a bad deal for shareholders.

Shale oil producers “are creatures of the capital markets ,” Chanos told Bloomberg TV's Julia Chatterley, Joe Weisenthal and Scarlet Fu. “Because the wells deplete so quickly, they constantly need to raise money to replace the assets.”

Producers in the U.S. and Canada have made dramatic efforts to cut costs since the collapse of oil prices three years ago, with many delivering higher dividends to investors this year. But with limited wiggle room to reduce costs further, any improvement in their ability to sustain healthy returns will have to come from commodity prices, Moody's analysts Sreedhar Kona and Steven Wood said in the report.

The two analysts used a measure of how efficiently cash is generated to cover the costs of leasing drilling rights and boring wells, and still have enough left over to invest in future projects.

“Companies will be able to demonstrate meaningful capital efficiency, measured by the leveraged full cycle ratio, only if the West Texas Intermediate oil price is above $50 per barrel and the Henry Hub natural gas price is at least $3.00 per million British thermal units,” they said.

With a few notable exceptions like Appalachian explorers Antero Resources Corp. and Range Resources Corp. , as well as Canadian shale gas producer Seven Generations Energy Ltd. , the ratio for the vast majority was way below a level Moody's considers healthy.

Interestingly, the three best performers are focused on liquids-rich gas plays -- the Marcellus and Utica formations in the northeastern U.S. and the Montney shale in Alberta. Antero and Seven Generations have seen their cash flow from operations surge over the past few years, according to data compiled by Bloomberg .

Producers' leveraged full cycle ratio needs to be significantly above 1 for explorers to earn a meaningful return on their investment, the Moody's analysts said. The average for the 37 explorers was 0.59 last year, according to the study. The ratios for the top three performers were above 1.5. Antero's 2.19 ratio tops the list.

Among the lowest ranking were Apache Corp. and Devon Energy Corp. , with ratios below 0.05, according to the report.



We invite all our readers to share with us
their views and comments about this article.

Write to editor@petroleumworld.com

By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+ Windows NT 4.0, '95,
'98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels


Nov 13-14 ;
Mexico City, Mexico

 

TOP

Contact: editor@petroleumworld.com,

Editor & Publisher:Elio Ohep/
Contact Email: editor@petroleumworld.com

CopyRight © 1999-2016, Paul Ohep F. - All Rights Reserved. Legal Information

PW in Top 100 Energy Sites

CopyRight©1999-2017, Petroleumworld ™  / Elio Ohep - All rights reservedThis site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.