• The debt burden of U.S. shale oil producers has become increasingly troublesome.
• Regardless of a potential elimination of the U.S. export ban, crude oil exports are not economical at current prices.
• This week, OPEC forecasted a return to $80 oil by 2020.
As WTI crude prices continue to hover in the mid-$40s, the debt burden of U.S. shale producers becomes more and more troubling for shareholders. While some of the top producers have solid hedge positions for the time being, the reality is that unless oil prices begin to rise sometime soon, a large number of shale producers will be forced to drastically dial back production.
Suffocating Debt
Incredibly, more than half of the 60 U.S. shale producers in the Bloomberg index currently have debt levels in excess of 40 percent of their enterprise values.
For now, many of these high-debt names continue to be top producers of crude oil. Whiting Petroleum Corp (NYSE: WLL), Chesapeake Energy Corp (NYSE: CHK), California Resources Corp (NYSE: CRC), Encana Corp (NYSE: ECA) and Denbury Resources Inc (NYSE: DNR) all still produce more than 60,000 bbls/d each, despite their debt burdens.
Export Relief
Oil bulls may have rare reason for optimism in coming weeks, as there has been a growing political push to lift the 40-year-old ban on U.S. crude oil exports. On Thursday, the House energy committee voted 31 to 19 to approve eliminating the ban, a vote which included three Democrats.
Unfortunately, with oil prices at current levels, exportation will likely continue to be uneconomical for the time being.
Oil Outlook
Oil forecasts continue to vary on Wall Street. Goldman Sachs is forecasting long-term crude prices at around $50/bbl. However, just this week, OPEC representatives said that they expect the price of crude to return to $80/bbl by 2020.
Disclosure: the author owns shares of Whiting Petroleum.
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