Small US Shale Companies to Be Bought Out - Former US Official

© AP Photo / Hasan JamaliIn response to the high cost of US shale, Saudi Arabia has been selling its massive stockpile of crude oil at rock-bottom prices.
In response to the high cost of US shale, Saudi Arabia has been selling its massive stockpile of crude oil at rock-bottom prices. - Sputnik International
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Former US Assistant Secretary of Energy Chuck McConnell claims that the US shale oil industry is likely to consolidate as some producers are bought up by companies with sounder balance sheets.

WASHINGTON (Sputnik) – The US shale oil industry is likely to consolidate as some producers are bought up by companies with sounder balance sheets, former US Assistant Secretary of Energy Chuck McConnell told Sputnik on Thursday.

“What we generally see during times like this is that the small companies often will be acquired, often will consolidate. I do believe that we will see acquisitions occurring from companies that are not able to stay in business,” McConnell said.

He added that under current market conditions companies with strong balance sheets may be looking to acquire assets.

Oil markets were negatively affected by Saudi Arabia's decision to cut prices for January deliveries to US and Asian customers. - Sputnik International
Oil Prices Below $30 to Trigger Bankruptcies of US Shale Companies
The drop in oil prices over the past year has put pressure on US shale producers, many of which loaded up on debt to drill wells and expand production before the price collapse. Some companies were able to hedge against the loss with futures contracts, but the sustained oil bear market is beginning to take its toll on the sector.

“It [price drop] puts a strong challenge in front of that industry, because the costs associated with lifting from shale oil and shale gas are certainly higher than many other ways of acquiring oil and gas,” McConnell said.

Instead of drilling costly new wells shale producers are attempting to extract as much oil as possible from existing wells, which in turn is leading to some efficiencies.

“The shale business and the shale industry with the advanced technologies has continued to get more competitive, and it also continues to get more productive,” McConnell explained.

He added the price drop has “sharpened companies’ ability to perform and be profitable in lower energy price circumstances.” This is likely to lead to better technology and higher productivity, he added.

The downturn is impacting the energy sector in other ways, with layoffs in both service and oil companies. The layoffs are likely to impact states such as Texas and North Dakota which have been at the forefront of the shale revolution in the United States, McConnell said.

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