Is US Shale Oil Production Profitable?
My answer to a recent Forbes article: How Is U.S. Shale Oil Production Performing So Well?
This is a decent analysis of the current state of affairs of U.S. shale production. The author’s assertion that “shale oil and gas have been spectacularly successful, only dropping (in aggregate) when prices declined “sharply” is questionable.
Why? The shale industry has been very successful if production is the primary barometer of success. The relevant question is “but are they profitable?” Looking back, the answer is “not very.” A survey by the WSJ in 2019 asserted that 90% of the shale wells drilled were not profitable stating that the investment in shale drilling was 80 billion dollars in the hole.
Of course, that was just a snapshot in time.
The simple answer is, the shale drilling industry can be profitable if the price of oil and gas is high enough and companies can keep costs low enough. What is the price of profitability and have costs been cut enough? That’s the question the investment community should be asking.
We shall see if the investment community has a long or a short term memory. We will need oil and gas for another half-century at least. Or, as my ole Daddy would say “those baby calves always come home to the milk”. Every modern industrialized country on earth has built their respective economies on using more fossil fuels, not less.
This segment of the industry will recover and prosper as long as they and OPEC don’t overproduce and prices stay high enough. As more oil and gas companies commit to zero emissions by a certain date (2035 and or 2050 seem to be the popular targets) investors should hope they are merely talking the talk.
Walking the walk is just too expensive.