Can Shale Survive Low Oil Prices?

Zero Hedge | 6/11/2019 | Staff
baileyboo (Posted by) Level 3
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Lower oil prices could drag down U.S. shale drillers at a time when their finances are already looking shaky. But the impact on oil production growth is still murky.

WTI is in the low-$50s per barrel, which means that the average shale driller is likely burning through cash. In the first quarter, most U.S. E&Ps were cash flow negative, a period of time when WTI averaged $54 per barrel, right about where oil is trading today.

Rig - Count - Week - June - US

The rig count continues to fall. In the week ending on June 7, the U.S. oil rig count plunged by 11, falling to 789. The rig count has declined by roughly 11 percent, or 100 rigs, from a recent peak reached last November. In the Permian basin, where much of the action is, the rig count fell by more than 9 percent over that timeframe, from 493 to 446.

Complicating matters further for Texas shale drillers is the increasing shift of the oil slate to lighter forms of crude. Oil coming out of the ground in West Texas was light to begin with, but as drillers begin to shift increasingly from the Midland to the Delaware basin, oil is becoming lighter and lighter.

Refineries - Gulf - Coast - Oil - Light

The refineries along the Gulf Coast are not equipped to handle oil that light. It is typically mixed in with other streams to create WTI, but rising volumes of ultra-light oil are forcing changes. Instead, the industry is beginning to separate out oil of different qualities, forming new grades, as Reuters reports. In addition to WTI, markets are opening up for West Texas Light (WTL) and even West Texas Condensate (WTC). These newer, lighter grades are trading for discounts, which means that some companies are selling their product for prices well below the prevailing WTI price.

But while drillers take an additional hit from discounts, the...
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