The rapid decline of U.S. oil prices will test the claim of fracking companies that they can now prosper at $50 a barrel or less, a price level they have found challenging in the past, The Wall Street Journal reports.
For years, the companies behind the U.S. oil and gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders that they have thousands of prospective wells that they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%.
But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion.
Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.
U.S. oil prices traded below $50 last week and closed Monday at $52.95.
The disconnect between the figures cited by companies and their corporate returns lies in the widespread use of a metric called a break-even, often defined as the selling price frackers say they need to generate a small profit on individual wells or projects. While the figure can be quite low for some companies in certain hot spots, it can be a misleading measure of their overall profitability in periods of lower prices.
