October 30, 2014 - 4:06 PM EDT
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Oil Price Collapse Cannot Be Good For Drillers But May Create Value Plays In Producers

Oil prices continue to plunge taking a lot of solid oil & gas companies down with them. The Western Canadian Sedimentary Basin is full of opportunity today. But how low can prices go?

The answer is they can go a lot lower. That is the bad news. The good news is that if they do go a lot lower, they will ultimately go a lot higher.

The break-even point for the shale oil producers is between $55 and $110 per barrel depending on the shale play, according to Wood Mackenzie estimates published by Business Insider.

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But break-even does not mean stopping production, which is seldom the outcome. What it does mean is stop drilling. When you are beating your head against a wall, it feels good to stop.

With oil at about $80 a barrel, quite a few drilling rigs will be idled and if oil drops to the $40 to $50 range many will stop drilling. I think oil will fall that far or even farther. It is a pure commodity and any surplus results in lower prices with sometimes dramatic…

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Source: SeekingAlpha (October 30, 2014 - 4:06 PM EDT)

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