Jun 22, 2020 - Energy & Climate

Shale's uncertain future amid coronavirus pandemic

Ben Geman

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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Shale's uncertain future amid coronavirus pandemic

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