The private equity huge contribution to shale oil in just 3 months: $ 19.8 billion

by Moris Beracha

Shale oil projects in the United States have managed to raise in only three months 19.8 billion dollars in private equity investment

The shale sector in the United States has become increasingly attractive to investors not because of rising oil prices but rather because producers have achieved startling cost reductions

 

Moris Beracha.- Not only OPEC and Russia’s decision to cut the world’s oil production by about 1,800,000 barrels a day to rebound oil prices to 60 or 70 dollars a barrel has not been achieved, but it is uncertain that the big banks support production expansion projects now when it is said that this cut will be extended beyond 2017.

In contrast, the story is different for shale oil projects in the United States, which with the current prices have begun to rebound their production in the first quarter of the year and also have managed to raise in only three months 19.8 billion dollars in private equity investment, according to reports of Preqin, a firm leading source of data and intelligence covering commodity-related businesses. Sorry for the immodesty of quoting us, but in a previous article that we published on this subject at the beginning of the year, we had already highlighted that all the forecasts pointed to a recovery and to greater disbursements of the private equity for this sector.

A news published by the Reuters agency told us how during the first quarter of 2016 many shale oil producers filed for bankruptcy and twelve months later almost rose like the Phoenix because they have become more competitive to assume costs at a lower price and also they get fast financing that is impossible in the banking.

“The shale sector has become increasingly attractive to investors not because of rising oil prices but rather because producers have achieved startling cost reductions, slashing up to half the cost of pumping a barrel in the past two years. Investors also believe the glut will dissipate as demand for oil steadily rises,” says the article published in mid-April.

Not only are we seeing an industry that uses technology to benefit competitiveness but an expeditious financing scheme such as that of private equity, which knows how to respond quickly to the radical changes that are taking place in the industry of the main energy source in the world.

When in mid-2014 Saudi Arabia decided to quickly increase production and with an unprecedented pumping, it almost augured the end of shale oil in the United States, but it did not happen. It is true that many of those small and medium-sized companies that are in Texas, North Dakota or Oklahoma were seen to have problems, but made their adjustments and despite the financial problems they faced, they did not close the possibility of obtaining money thanks to the Private equity. That is to say, these capital funds did not operate the same as banks do and it was understood that the storm was not going to be eternal, while it was perceived that the ability to readjust was going to be fast as it actually happened.

What are we seeing now? The US Department of Energy’s data reports an increase in production in the first quarter of 2017. Total production is again at about 9 million barrels per day, an increase of about 200,000 barrels between December last year and March this year.

If we consider the regional figures, we see that Texas production is on a steady rise to settle at 3,300,000 barrels a day, while the North Dakota production again surpassed the million-barrel-day barrier and the same is occurring with Oklahoma, although not with the same dynamism of the other two regions.

In contrast, OPEC countries have stagnant or declining production and access to financing is limited – because it is benevolent – or simply closed depending on the producing country.

In short, the hydrocarbons business changed and we are seeing it with two contrasting or paradoxical realities, but we also realize that the same thing happens with the financial business: a traditional bank that is fearful for entrepreneurs or innovations versus private equity, hedge funds and online investment banks with new models.

Commentarios

  1. Jesus prato

    Jesus prato, June 7, 2017

    Reply

    Muy bueno el articulo y el analisis. La cuota de produccion de deja la opep siempre sera cubierta por otro actor no miembro y sera casi imposible de recuperar.

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