In the US the awareness for shale energy is maturing. In other countries it has just in the early stages of acknowledgment, after vehement denial by many stakeholders.
The low oil price, driven by a strategy which only some of us understand (not myself), had one main objective; to drive out shale production, and get back leadership and dominance by OPEC.
They missed out a couple of factors:
- Cost for shale exploration and production came down significantly
- The business mentality in the US; if you fall, you get up again (if necessary, go bankrupt, and start all over again. Shale is not going anywhere)
- If prices go down, so do cost. Inflated cost for service providers and workers came down. The other variable is the price of acreage. It will simply go down, when the revenues don't justify old levels.
- Technical developments have pushed down shale exploration. Drilling has become a lot cheaper, and we have not reached the end of progress in terms of cost and output.
- Big cat projects, demanding investments of 10 to 30 billion, appear to be too risky for big oil. And yet, they are all involved in a series of those type of projects! It is their core production. The new development is this: On top of big cat projects big oil will use shale as their swing production. Easy to scale up/down. Low cost to develop. Incremental growth, as and when necessary and profitable. A must have of a modern portfolio over the next 5 years.
The factors above are part of the main drivers that contribute to the survival of shale, in fact the revival. If there ever was a coordinated effort to drive down prices to kill shale, it failed. In fact, it brought to light its strength. It is local energy, offering independence of big oil and rogue nations.
Yes it is more expensive then Middle East production, but that is not relevant. As long as there is a profit, it will be the future. And part of the upside is independence!
Big oil will take over key shale assets, also in Europe, for all of the above reasons. No doubt. This is why AJL is an ace investment, as it is holder of 50% of one of Europe's largest shale deposits.
AJL Price at posting:
42.0¢ Sentiment: Buy Disclosure: Held
