Risk versus Profit in Fracking Shale Formations

RISK VERSUS PROFIT IN FRACKING
SHALE FORMATIONS
By www.ProfitableInvestingTips.com

HTTP://PROFITABLEINVESTINGTIPS.COM/STOCK-INVESTING-TIPS/RISK-VERSUS-PROFIT-IN-FRACKING-SHALE-FORMATIONS
As oil prices fall we would like to
look at risk versus profit in
fracking shale formations.

The United States crude oil
production is near a four decade
high.

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With production at historic highs
the U.S. imported 3.7 billion
barrels of oil in 2014 as opposed
to 5 billion barrels of oil in 2006
according to the U.S. Energy
Information Administration web
page for U.S. Imports of Crude
Oil and Petroleum Products.

That was twenty-six percent drop
in oil imports.

As a result of the U.S. oil shale
fracking boom and a lagging
world economy the price of crude
oil has fallen substantially.

Reuters reports that oil is near
an 11-year-low due to excess
supply. Reuters reports the story.

Oil fell to around $37 a barrel on
Monday, trading within sight of an
11-year low, pressured by excess
supply that has led to prices more
than halving since the downturn
began in mid-2014.

U.S. crude was trading above
global benchmark Brent, having
earlier in December risen to a
premium for the first time in about
a year following the lifting of a 40-
year-old ban on most U.S. crude
exports.

“We expect both prices to rise
next year,” said Eugen Weinberg,
an analyst at Commerzbank.

“A short-term slide can’t be
excluded, due to persisting over-
supplies, negative sentiment and
stronger downside momentum.”

Figures from the Organization of
the Petroleum Exporting
Countries imply a glut of more
than 2 million barrels per day,
equal to over 2 percent of world
demand.

Oversupply is expected to persist
into the earlier part of next year.

The problem for those pulling oil
from share formation via fracking
is keeping costs low and
production high while staying in
business until the price of oil goes
up.

Surviving Low Prices

To a certain degree the problem
for those drillers who are fracking
oil formations is that no good
deed goes unpunished!

Although the world economy is
slowing it is substantially higher
U.S. oil production and
persistently high OPEC
production that is helping keep
prices down.

The fracking operations that are
staying alive are using every
possible efficiency they know to
stay in the game until prices come
back up.

Bloomberg Business reports that
many U.S. operators are running
out of survival tricks as OPEC
refuses to cut production in a
costly game of chicken.

In 2015, the fracking outfits that
dot America’s oil-rich plains threw
everything they had at $50-a-
barrel crude.

To cope with the 50 percent price
plunge, they laid off thousands of
roughnecks, focused their rigs on
the biggest gushers only and
used cutting-edge technology to
squeeze all the oil they could out
of every well.

Those efforts, to the surprise of
many observers, largely
succeeded.

As of this month, U.S. oil output
remained within 4 percent of a 43-
year high.

The problem? Oil’s no longer at
$50. It now trades near $35.

For an industry that already was
pushing its cost-cutting efforts to
the limits, the new declines are a
devastating blow.

These drillers are “not set up to
survive oil in the $30s,” said R.T.
Dukes, a senior upstream analyst
for Wood Mackenzie Ltd. in
Houston.

The Energy Information
Administration now predicts that
companies operating in U.S.
shale formations will cut
production by a record 570,000
barrels a day in 2016.

That’s precisely the kind of
capitulation that OPEC is seeking
as it floods the world with oil,
depressing prices and pressuring
the world’s high-cost producers.

It’s a high-risk strategy, one
whose success will ultimately
hinge on whether shale drillers
drop out before the financial pain
within OPEC nations themselves
becomes too great.

There is still oil to be drilled out of
shale formations for a long, long
time.

Those companies that survive
should do well into the indefinite
future.

And those who do not make the
cut this next year will go out of
business.

Companies with substantial cash
reserves will likely to better and
those with a lot of debt will get
bought out or simply go bankrupt.

Do your homework before
investing in this market sector.

Risk versus Profit in Fracking Shale Formations

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Risk versus Profit in Fracking Shale Formations