Jadwa Investment: Recent uptick in oil prices presents US shale oil with a potential life-line

According to a report, heavy cost-cutting measures, technological improvements and hedging allowed US crude oil production to remain positive in 2015, this will not be the case in 2016. During Q1 2016, US oil production saw its first year-on-year decline in eight years and this decline is expected to continue throughout the remainder of 2016. 

The report, released by Jadwa Investment, states: “Falling oil prices resulted in a significant reduction in the US rig count but through various cost-cutting and efficiency measures shale oil companies improved well productivity, thereby stemming a major decline in oil production, until now. Latest data shows that production at the three major shale oil fields has peaked and so  larger declines are forecasted going forward. ”

Despite this, the recently observed uptick in oil prices presents shale oil companies with a potential life-line. Not only does it raise the possibility of hedges being taken out again, a revival in prices could also see investor interest in the sector being reignited.

The recently observed uptick in oil prices presents shale oil companies with a potential life-line.

The report adds that a number of shale oil companies are restructuring under Chapter 11 bankruptcies, thereby prolonging oil production. Concurrently, the number of drilled uncompleted wells  (DUCs), all of which can be brought on-line relatively quickly, have risen in recent months.

Further, the report mentions that all of these developments mean that even as current oil and financial indicators point to declining production in the next two years, it is possible that actual production might turn out to be better-than-expected.