Repeat of last oil bust unlikely
Despite a drastic drop of crude at the end of2018, a survey from the Federal Reserve of Dallas quashes fears of another downturn like 2014’s — mostly because energy companies have smartened up.
Despite a drastic drop in the price of crude in the last three months of 2018, a repeat of the last energy downturn, when companies slashed spending and jobs, appears unlikely, according to a survey by the Federal Reserve Bank of Dallas.
One reason why may be that three years from the end of the recent oil bust, many companies can make money at much lower prices, according to an analysis by the Norwegian energy research firm Rystad Energy.
Oil prices fell 40 percent at the end of last year to about $42 a barrel, and though they have recovered somewhat, they remain about 30 percent below the October peak of $76 a barrel. Oil settled Thursday at $54.41 a barrel.
Rystad, however, found that about 40 percent of projects in U.S. shale plays are able to profit with crude prices at $45 a barrel. In a new analysis of the best performers in each shale region, Rystad highlighted Chevron, Occidental Petroleum, Apache Corp., Pioneer Natural Resources, Concho Resources and Devon Energy as the largest, most successful players in the booming Permian Basin in West Texas and New Mexico.
Rystad said most of the companies it cited can turn a profit in the Permian even with oil prices in the range of $30 to $45 a barrel. In some acreage in the Delaware Basin, the Permian’s western lobe,
Rystad estimated that Chevron could keep oil churning at $20 a barrel without losing money.
“A $50 environment will not act as a show-stopper for current U.S. shale oil activity,” said Artem Abramov, a Rystad partner.
The Dallas Fed survey of oil and gas executives found that lower oil prices should result in slower growth in 2019 after coming off sustained expansion. Uncertainty among producers has increased, the survey found, but capital spending on drilling and other projects is likely to remain close to prior-year levels.
About 70 percent of executives said capital spending in 2019 will either be close to or above 2018 levels.
“The persistence of the oil price decline will be key to how events unfold in 2019,” the Dallas Fed said in the report. “So far, survey respondents believe that the recent drop is temporary. A significant percentage, 64 percent, expect oil to be at $60 or higher by year-end.”