Reports / commentaries are seeping from many commentators / finance talk shows re shake out and reworking of shale oil industry.
Impact of PoO on US frackers.
Other leading shale oil companies have announced reductions in their capital spending plans: Continental Resources cut its 2015 budget from $5.2bn to $4.6bn; Rosetta Resources said it would spend about $950m next year, down from $1.2bn in 2014; and ConocoPhillips said it planned to spend less next year than the $16bn it is spending this year.
From December 2014 Fed Beige book:
Industry contacts reported that the recent drop in oil prices led regional exploration and production firms to evaluate operational flexibility, cost- management strategies, and extraction technologies, although steady production is anticipated in both deepwater and onshore drilling.
Oasis Petroleum has announced their preliminary 2015 capex plans — the first “big” Bakken producer to do so up to this point. Below is portion of their latest investor presentation. Oasis is now focussed on "high intensity Completions".
The recent drop in crude prices won’t kill off the US shale oil industry. It’ll just make it more efficient. Profit margins and break-even points are relative not only to the price of oil, but also to the cost of doing business. As oil prices drop, producers will undoubtedly renegotiate their ludicrously expensive oil service contracts, slash wages for their workforce and cut perks to bring their costs in line with the depressed price for crude.
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In agreement with your post:
1. Royalties paid to land owners will decrease => DOWN
2. Price of land decreasing => DOWN
3. Running costs => Need to be reigned in
4. Admin bonuses......Market is full of examples where excecutive incomes were cut in proportion to revenue downturn, eg., BHP Billiton, BG, Nintendo. Will our group follow suit.....well, I wont hold my breath.
Clearly, SSN mgment will (or should) reconsider the more risky projects and reducing overheads, perhaps, in favour, of acrage acquisition during this "fire sale"?
IMO - with hedging, SSN is better placed than many frackers. However, even so, company cannot sustain long term viability without consistent and profitable revenue stream.
Certanly the fracking tree is getting well and truly shaken. ......see you in New Year.
Good luck and best wishes to all and respective families,
MS
SSN Price at posting:
1.2¢ Sentiment: Hold Disclosure: Held
