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U.S. Shale Is Determined Not To Kill This Rally

U.S. Shale Is Determined Not To Kill This Rally

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The shale industry has repeatedly drilled itself into a whole, deploying rigs at such a frenzied pace that they have killed off several oil price rebounds. This time, perhaps, might just be different. Investors are a bit more cautious, pressuring companies into slashing spending and improving profitability. Last week we saw a flurry of spending cuts, from Anadarko Petroleum, Whiting Petroleum, ConocoPhillips and Hess Corp. More are likely in the offing.

As oil makes a quick recovery, two billionaires have joined forces to take advantage of the incredibly cheap deals in the market. This is a rare opportunity for regular investors to invest right alongside these two tycoons in a new venture.

That occurred because many companies have questionable economics at today’s oil prices, despite the boasts of so many shale executives over the past few years. "Most investors shared our view that U.S. onshore growth is unsustainable in the $40-$45/bbl price environment and that activity would need to be reduced to better balance corporate cash flows and" spending, according to analysts with investment firm Stifel. "Our end conclusion is we need less rigs and more capital discipline."

Other analysts have come to the same conclusion. "By prioritizing production growth over profitability and margins, investors and producers are at risk of killing their goose before it lays a golden egg," Benjamin Shattuck of Wood Mackenzie said in a recent report.