US Shale Producers Lose Price Bet

US Shale Producers Lose Price Bet

The majority of US shale oil and gas producers passed up the opportunity to hedge prices by guaranteeing at least $60/b last quarter, Reuters reported.

Roughly 70% of US companies did not choose to hedge prices, ostensibly betting that oil prices would be over $60 by the current period.

“The general feeling among producers is that if you aren’t hedged today… (you are) not going to start tomorrow and lock in lower levels,” said Mike Corley, president of energy trading and risk consultancy Mercatus Energy.

Late August saw some of the lowest oil prices in over six years, with spot WTI prices below $40/b.

CNBC noted that shale producers are embracing different methods in an attempt to increase efficiency. Called Improved Completion, it works by increasing well pressure at much higher rates than before, pumping more water and fracturing fluid in an attempt to maximize revenue and slow the maturing process.

“I think a lot of areas in both the Bakken and Eagle Ford, and even the Permian, wouldn’t work without the improved completion,” said Stifel Nicolaus analyst Michael Scialla,

US shale is reeling from low prices during an unprecedented supply glut, and analysts are skeptical many companies will emerge unscathed. “If you stay at $40, there will be a meaningful number of companies that don’t make it,” Wells Fargo Analyst David Tameron said. “Even with the efficiency gains, you’d need to have a change somewhere.”

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