U.S. Shale Oil Boom
Introduction…Private equity funds raised $19.8 billion for oil ventures in the first quarter. That is nearly three times the total raised the same period last year.
The accelerating pace of oil private equity, along with hedge funds and investment banks, arrives even as the recovery in oil prices from 8-year low has stalled at $50 per barrel due to stubborn oil glut.
Why the increase investment now? The shale sector has become increasingly attractive to investors not because of rising oil prices, but rather because producers have achieved startling cost reductions – slashing up to half the cost of pumping a barrel in the past two years. Investors also believe the glut will dissipate as demand for oil steadily rises.
The financiers are confident that they can squeeze increasing returns from shale fields – without price gains – as technology continues to cut costs. In addition, “Demand for oil has been more robust than anyone imagined three years ago,” said Mark Papa, chief executive of Centennial Resource Development Inc. (CDEV.O).
What now…This year’s drilling rush could be tested if global supplies grow too fast or if demand cools. The U.S. drilling rig count is rising at its fastest pace in six years and U.S. crude stockpile are close to 533 million barrels – near an all-time high and enough to supply the United States for 25 days.
In summary...”Shale funders look at the economics today and see a lot of projects that work in the $40 to $55 range” per barrel of oil, said Howard Newman, head of private equity fund Pine Brook Road Partners, which last month committed to invest $300 million in startup Admiral Permian Resources LLC to drill in West Texas.
Source: Earnest Scheyder, “Undaunted by oil bust, financiers pour billions into U.S. shale, Reuters, 17 April 2017