{"id":22186,"date":"2015-05-06T10:29:10","date_gmt":"2015-05-06T09:29:10","guid":{"rendered":"http:\/\/www.rtcc.org\/?p=22186"},"modified":"2015-05-07T09:13:28","modified_gmt":"2015-05-07T08:13:28","slug":"us-frackers-vulnerable-in-face-of-falling-oil-prices","status":"publish","type":"post","link":"https:\/\/www.climatechangenews.com\/2015\/05\/06\/us-frackers-vulnerable-in-face-of-falling-oil-prices\/","title":{"rendered":"US frackers vulnerable in face of falling oil prices"},"content":{"rendered":"

ANALYSIS:\u00a0US shale drillers may be vulnerable to oil price below $50, even while investment shows no sign of slowing<\/strong><\/span><\/p>\n

\"(Pic:

(Pic: Nexen\/Flickr)<\/p><\/div>\n

By Gerard Wynn<\/a><\/strong><\/p>\n

Some major US shale oil and gas producers may be vulnerable to a sustained WTI crude oil price of around $50 and lower, even before their protective hedges expire this year,\u00a0new analysis shows.<\/strong><\/p>\n

All the while, investors are backing the sector with record amounts of capital.<\/p>\n

Oil prices have risen over the past month, but last year\u2019s experience underlines their volatility.<\/p>\n

The Carbon Tracker Initiative<\/a><\/strong>\u00a0analysis, which I co-authored, investigated five major shale independents, and made three conclusions.<\/p>\n

First, it found that at sustained oil prices below around $50 a barrel, some companies such as Whiting Petroleum would approach debt covenants agreed under their senior credit facilities.<\/p>\n

Chesapeake appeared sensitive to oil prices below $50 coupled with gas prices below $2.25 per mcf.\u00a0These covenants are lines which creditors expect companies not to cross.<\/p>\n

This was a static, illustrative analysis.<\/p>\n

In the real world, options for evasive action not to exceed covenants would include capital raisings, or a re-negotiation with creditors. But the findings illustrated their sensitivity to lower oil and gas prices.<\/p>\n

Second, oil hedges on all five companies would decline this year, and expire altogether for most (see chart below).<\/p>\n

\"Gerard_fracking_800\"<\/p>\n

The hedges will protect the companies in 2015, raising around $1.2 billion in the case of Chesapeake, for example.<\/p>\n

The question is how companies will replace such revenues in 2016, given any replacement hedges will be at less attractive prices (perhaps around $60 compared with $75-95 or so this year).<\/p>\n

And third, investors have backed the sector with a record amount of capital so far this year.<\/p>\n

The first quarter and the month of March were both records for public equity offerings, by U.S. exploration and production energy companies.<\/p>\n

And as of April 30 they had issued some $18 billion in high yield bonds, compared with $36 billion outstanding for the whole of last year.<\/p>\n

What does it all mean? Investors should be aware that these relatively high-cost producers have still not felt the full effect of collapsing commodity prices.<\/p>\n

This article was first published on the Energy and Carbon Blog<\/a>. Follow Gerard on twitter @gerardfwynn\u00a0<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"ANALYSIS: US shale drillers may be vulnerable to oil price below $50, even while investment shows no sign of slowing","protected":false},"author":2,"featured_media":14940,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[2443],"tags":[451,584],"coauthors":[],"class_list":["post-22186","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-comments","tag-fracking","tag-oil-prices"],"acf":[],"yoast_head":"\nUS frackers vulnerable in face of falling oil prices<\/title>\n<meta name=\"description\" content=\"ANALYSIS: US shale drillers may be vulnerable to oil price below $50, even while investment shows no sign of slowing\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" 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