Experts: U.S. shale drillers will weather $80 oil if they planned ahead
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- Nicholas Sakelaris
- Staff Writer- Dallas Business Journal
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Remember way back in July when crude oil sold for more than $100 a barrel?
Those were good times for the oil and gas industry in Texas.
Over the past four months, the price has fallen more than $25 a barrel, or 20 percent. On Thursday, West Texas Intermediate was trading at $82 a barrel.
That's been great news for consumers at the pump, as regular gasoline has fallen below $3 a gallon.
But if you're drilling for shale, $80 oil certainly cuts into your bottom line.
Time to panic?
"Absolutely not," said David Mahmood, chairman for Allegiance Capital Corp. "Those people who are in expensive formations, tight formations where the cost is higher are going to feel it first."
But management teams that are experienced and planned ahead for drops in commodity pricing will weather the storm, said Mahmood, whose investment bank specializes in mergers and acquisitions.
"If we get swayed by the moment, you're like the proverbial ball in a pinball machine bouncing around," Mahmood said. "That isn't a good way to try to run your business."
When he advises clients, he tells them that the only constant is change.
"You will come under price pressure when there's too much of your product," Mahmood said.
Anytime there's a downturn, some companies lose but there are also winners. Stronger companies can buy up distressed companies at rock bottom prices.
It's similar to what happened with natural gas prices in late 2008. At that time, new shale production caused a glut of natural gas in the market, sending prices tumbling.
Companies heavily invested in natural gas suffered, like Chesapeake Energy, which had to cut jobs, (NYSE: CHK) and Energy Future Holdings, which is in bankruptcy.
Nicholas covers the energy, manufacturing, aviation and transportation beats for the Dallas Business Journal. Subscribe the Energy Inc. newsletter
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