Shale Will Need More Than $50 Oil and Saudi Cut to Boom Again

The pandemic-hit American shale industry is likely to show restraint as prices jump and Saudi Arabia pledges a big supply cut.

What in previous years would have triggered a knee-jerk reaction of raising output and grabbing market share will probably be just an opportunity to pay down debt or boost dividends this time around.

“Our primary priority right now is to reduce debt,” Occidental Petroleum Corp. Chief Executive Officer Vicki Hollub, who heads one of the largest exploration and production operations in the Permian Basin, said in an interview on Tuesday. “We’re pretty close to the right production profile for $50 a barrel today because what we’re trying to do is just further improve our margins.”

The Middle Eastern kingdom’ssurprise decision Tuesday to curb output by 1 million barrels a day in February and March caused oil prices in New York to briefly surge above $50 a barrel for the first time since February, before the pandemic sent oil markets crashing and over 40 explorers went bankrupt.

But even before the pandemic, Wall Street was growing weary of shale’s cash-burning spree of hundreds of billions of dollars, with explorers not delivering enough in the form of investor returns. So, producers are more likely to use the tailwind from Saudi Arabia to pay investors back.

To increase production, “shale will need a sustained price of above $50 a barrel for West Texas Intermediate crude, or probably closer to $60,” said Aaron Brady, executive director for IHS Markit.

Also See: Oil Drilling in U.S. Ends Fraught 2020 at Pre-Shale Levels

Plus, it would take at least three months for shale producers to ramp up production, because that would involve decisions on new drilling and getting well-completion crews together, Brady added.

— With assistance by Kevin Crowley

Source: Read Full Article