Shale investors ‘risking $8.9bn on oil price rollercoaster’

Investors have been pouring in billions of dollars in the US shale industry however some of the investment could be at risk. New analysis suggests investors could face a bumpy […]

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By Priyanka Shrestha

Investors have been pouring in billions of dollars in the US shale industry however some of the investment could be at risk.

New analysis suggests investors could face a bumpy ride as a result of uncertain oil prices.

The Carbon Tracker Initiative found around $8.9 billion (£6.3bn) of equity has already been issued in the first quarter of this year despite the recent collapse in oil prices.

That’s more than a 10-fold increase in the last three months of 2015 and the highest quarterly level since 2011, it adds.

The report, which analysed five of the largest shale oil and gas exploration and production companies, found most new US onshore shale production is “uneconomic” at present oil and gas prices.

It forecasts the five firms will produce 10% less on average this year compared to 2015.

Its so-called central projection of a 2016 average crude oil price of $45 (£32) sees 20% lower overall revenues on average this year.

“If oil and gas prices stay at the levels seen in Q1 of 2016 throughout the year, revenues will be even lower,” the report adds.

Gerard Wynn, an advisor to Carbon Tracker and co-author of the report said: “The oil price rout has punished companies which failed to look ahead and hedge production. Those who set off at a sprint at the start of a marathon are feeling the pain now. Investors will have to be more careful than ever about betting on who will finish first and indeed if they will cross the line at all.”

According to the report, the US shale industry has total outstanding bond and loan borrowing of $353 billion (£251bn).

Failing confidence in the sector last year is said to have damaged asset values, “leading to massive loss in wealth”.

The report states: “The market capitalisation of U.S. E&P companies fell by $340 billion (£241bn) from May 2015 to March 2016 while bond values have fallen by $76 billion (£54bn) in the past eight months.”