Safe Haven

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Bloomberg: U.S. Shale Becomes Oil Industry’s Safe Haven as Prices Languish

The cost of shale production has fallen so much since then that it’s becoming a safe haven for major oil companies in times of volatile prices, providing rapid, reliable growth and quick returns even with crude trading for just over $50 a barrel, down by almost a third since the start of October.

ConocoPhillips said Monday it’s spending half its 2019 budget in the continental U.S., while Chevron Corp. is investing more at home than it’s done for more than a decade, with $3.6 billion going to the Permian Basin alone. Anadarko Petroleum Corp. and Hess Corp., both global operators, plan to increase spending on their American assets more than 40 percent.

Oil’s recent collapse caused “some different allocation going on within the budget,” Conoco Chief Executive Officer Ryan Lance said on Bloomberg TV. “We’re putting more toward our U.S. unconventional position,” he said, referring to shale.

Production growth “slows down at $50 but I don’t think it stops at $50, and it certainly continues if prices get back to $60,” Lance said. Skeptics thought shale “wouldn’t last long, but it’s here, it’s a huge resource and it’s going to be resilient and long lasting.”

 

4 thoughts on “Safe Haven”

  1. Bingo! This article highlights a real positive for TPL that I haven’t heard mentioned enough amidst all the concern about declining oil prices that continues to drag down our share price. Oil price is a variable that can be more than offset by increased production in the Permian on TPL lands. Consider these factors: 1.) OPEC+ announcing their plans of cutbacks in production, 2.) U.S. Political aspirations to be world’s largest producer, 3.) sunken cost on pipeline build outs in Permian that oil companies will want to enable ramped up production, and 4..) confirmation that shale production technology that allows profitability compared to other suppliers. Please poke holes in my reasoning, but all this to me screams more Permian production that bodes well for TPL royalties, even considering lower oil prices. Laws of supply and demand would say lower prices lead to decreased production, but that is too simplistic an argument when the locations of where there can still be compelling reasons to ramp up production is really what is the more important factor!

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