Jun 22, 2020 - Energy & Environment

Shale's uncertain future amid coronavirus pandemic

Illustration of an oil barrel tipped over, leaking oil into an unhappy smiley face
Illustration: Sarah Grillo/Axios

The shale sector is entering a "great compression" that could bring a "deep consolidation" as companies collectively face hundreds of billions of dollars worth of write-downs on their assets, a new Deloitte analysis finds.

Why it matters: The report shows how depressed oil prices stemming from the COVID-19 pandemic are slated to take a big toll on the sector, which was already struggling with debt and weak cash flow even before the crisis.

By the numbers: "Challenging oil market conditions could prompt the shale industry to impair or write-down the value of their assets by as much as $300 billion — with significant impairments expected in Q2 2020," the report finds.

  • 31% of shale operators are "technically insolvent" when U.S. oil prices are at $35 per barrel, while another 20% are "stressed." Prices are currently in the $39-per-barrel range.
  • Deloitte says roughly 27% of shale oil-and-gas companies are good acquisition targets for oil majors and large independent producers, while many others would be "superfluous," or too risky for buyers.

What's they're saying: Deloitte analyst Scott Sanderson said in a statement alongside the report that "selective" consolidation can help better position the distressed industry,

  • "Especially as the energy transition moves forward, investment in big data, advanced digitalization and sustainability measures can be of paramount importance to long-term survival and success," he said.
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