Oil below $30 fans wipeout fears among U.S. shale survival artists

Wed Jan 20, 2016 12:52pm EST
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By Terry Wade and Anna Driver

YORKTOWN, Texas (Reuters) - Across oil fields from Texas to North Dakota fears are growing that crude's plunge below $30 a barrel is more than just another market milestone and marks a countdown to an endgame for many shale producers that so far have braved the 18-month downturn.

Oil prices tumbled by more than a fifth this month to 12-year lows 70 percent below mid-2014 levels and traders brace for more declines as world production keeps outpacing demand.

Yet many of around 50 listed U.S. independent oil producers and scores of smaller ones need $40-$60 a barrel to break even, according to several analysts. A longer spell of $30 oil will confront them with stark choices: bankruptcy, debt writedowns in return for deep concessions to creditors or fire sales of assets at a time when potential buyers are skittish.

"There's no place to make cuts anymore. There's not much else you can do now. Companies are losing money on a monthly basis. It's bad everywhere," said Raymond Lasseigne, president of privately-held TMR Exploration in Bossier City, Louisiana. "I went through the bust in the 1980s and it's beginning to feel like that again."

The deepest downturn of the pre-shale era lasted five years and it took two decades for prices to fully recover.

In the heart of the Eagle Ford formation in south Texas, where the fracking boom unlocked vast supplies, contributing to the global abundance that is now sinking prices, some say the latest plunge may be just too much.

"We're going to reach a breaking point here," said Jill Potts, an owner of Summit Oilfield Supply in Cuero, Texas. Her business sells valves, fittings, hoses and other equipment to shale companies and so is exposed to the industry's ups and downs. "If anybody says they are making money in the oilfield they are lying," Potts said.

The once crowded trailer parks housing workers are nearly deserted, stacks of drill pipes rust and idled rigs spread over acres lay down on their sides.   Continued...

A pump jack stands idle in Dewitt County, Texas January 13, 2016.  REUTERS/Anna Driver