RE:RE:RE:RE:FCF at 100$ OILWell I am thinking this time will be different. The clear message to Shale CEO's has been cash flow and investor returns. EOG stock got hammered when the CEO mentioned the possibility of increasing produciton 10%-15% during a conference call to discuss Q4 results.
Shale companies will have to spend a lot of capital on just keeping production flat due to decline rates. They also drilled out a lot of Tier 1 property when oil was below $50, just to keep on the lights. A lot of the DUC's will not be completed as there is a reason they were DUC's in the first place. Bank financing will be less available and bank convenants will be much tighter. The Biden administration policy towards fossil fuels will also be a drag.
Everyone knows that OPEC will open up the flood gates if US Shale drilling gets out of line. For this reason I think the sweet spot from OPEC's perspective is oil in the $70 - $80 range. I think OPEC has the spare capacity to do this at least for the medium term (say through end of 2021.)
Longer term if the global economy continues to rebound into 2022 and air travel returns close to pre Covid levels, we may see a breakout towards $100.00. The big issues I see;
The Super Majors have reduced their investments in longer term conventional oil plays for a number years and they have committed to reducing production and using oil cash flow to finance renewable energy initiatives for ESG reasons.
It would take time for Shale to get back on a significant growth trend. Finding experience rig crews and drilling capacity will be an issue as skilled workers have dispersed and found other jobs and a lot of equipment has been decommissioned / scrapped.
A possible offset would be the return of Iranian barrels. I believe they are currently producing around 2M barrels and may be able to ramp up to 3M. I am sure a good portion of the 2M have probably been finding a market despite the US embargo. So not all of this will be incremental. Biden may be more incentivized to reach a deal with Iran if oil does hit $100.