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Low oil price? No problem. US shale firms are set to save up billions in record-high hedging gains

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Even though oil prices plunged to as low as $30 per barrel this week and are likely to go even lower as OPEC+ plans to increase production from April, US shale oil operators expect to save billions in record-high hedging gains in 2020, a Rystad Energy impact assessment shows.

Rystad Energy’s assessment is based on an analysis of a representative peer group of 30 dedicated US light tight oil firms with a combined output of about 38% of the total expected US oil production in 2020, excluding royalties.

Looking at the hedging positions of the considered companies, we conclude that they hedged almost 50% of their guided 2020 output at an average price floor of $56 per barrel.

The analysis shows that we might see a record-high cumulative hedging gain in the industry if the West Texas Intermediate (WTI) oil price stays below $40 per barrel. To be precise, the peer group’s hedging gains can be as high as $10.5 billion in a $40 WTI environment, potentially rising to $17 billion if WTI averages $25 in 2020.

To put the savings into perspective, the hedging gains in a $35 WTI environment are equivalent to more than 25% of the peer group’s capex guidance of $45 billion for 2020.

“The industry is well-positioned to mitigate the effects of an oil-price collapse in the short term thanks to the material cash flow support from derivative contracts,” says Artem Abramov, Rystad Energy’s Head of Shale Research.

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Learn more in Rystad Energy’s ShaleWellCube.

For more analysis, insights and reports, clients and non-clients can apply for access to Rystad Energy’s Free Solutions and get a taste of our data and analytics universe.

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Contacts

Artem Abramov
Head of Shale Research
Phone: +47 24 00 42 00
artem.abramov@rystadenergy.com

 

Lefteris Karagiannopoulos
Media Relations Manager
Phone: +47 90228994
lefteris.karagiannopoulos@rystadenergy.com

 

About Rystad Energy
Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. Rystad Energy’s headquarters are located in Oslo, Norway with offices in London, New York, Houston, Aberdeen, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.