Exploration and productions based oil companies especially in the areas relying upon shale and ultra deep drilling will have to cut back their exploration programs to almost zero. The immediate impact will be those working in the services sector will be unemployed promptly along with overhead personnel in most of these firms. Those who drill and provide mostly natural gas will do better in comparison as their drilling costs will go down with the increased availability of rigs. Firms heavily indebted with their production not hedged, EXXI a perfect example, will be stressed financially first. They will have to continue drilling and producing albeit at a loss to keep up cash flow. There are already many assets on the market as firms are trying to reduce debt. Buyers can choose the best assets which fit their programs, those that do not fit will languish on the sales block. If this continues beyond a year or so, marginal producers and or those in huge debt positions will be gone, either by bankrupty or takeovers. Anyone who recalls the 86 oil bust should recall how it all played out, it was not pretty in the energy producing areas but then again, that is mostly flyover territory to the elites. All IMHO of course.
See #22. Thoughts?
When oil hurts the nation laughs.
Some of these shale play companies will never go funds positive. They have to keep borrowing for years to keep paying back the borrowed well cost. This kind of drop in prices will leave them unable to ever pay back what they owe. The oil based shale sweet spots are drying up fast. They will go on the sales block at a loss and someone will buy them for a song. Just like in the past, the only ones making money will be the ones who bought the losses.
The oversupply isn’t that big and I am not so convinced that huge production increases will come out of Libya, Iran and Iraq in the next two years. We have waited on the Iraq dividend for several years now.
Right now this is punishment of shale and a panic in the pits. The shale fear will drive investors away for some time. That business will be in rationalization for a few years, two or three, prices will moderate to trade in the 70 to 90 range by 2017. That will be too long to wait for many and the service sector will suffer first as always. +100 has been a dividend and too high. The OPEC target of 90 ish was about right. There will be a lot of blood along I-10 and in Midland over the next 2 years. If you have a house to sell in those places better it had better be prime and you willing to take a hit on it.
As for your statement, “Exploration and productions based oil companies especially in the areas relying upon shale and ultra deep drilling”. There isn’t much else left to drill. The low fruit is gone. EXXI like companies may not make it without investors agreeing to just ride it out and delay payments.