U.S. SHALE OIL UP

FT - US shale oil companies have started to generate free cash thanks to the rise in crude prices, a landmark moment for an industry that has until now relied on an inflow of capital to support its growth.

Leading shale oil producers were able to cover their capital spending on new wells from their operating cash flows by the end of last year, and are generating significant free cash with oil prices at present levels, according to Wood Mackenzie, the research company.

The shift among leading shale producers to becoming self-financing is removing one of the key concerns for investors. US oil companies' share prices for months lagged behind the crude price as it started to climb last year, but in April they have started to rise as investors have become more hopeful of improved returns.

Andrew McConn of Wood Mackenzie said the larger US shale oil companies needed a crude price of about $53 a barrel to generate free cash. Benchmark US crude was $68 a barrel on Friday.

"It's quite a windfall for a lot of these companies," Mr McConn said.

From the time the first shale oil test wells were drilled in the US in 2008-09, the industry's capital expenditures have exceeded its cash from operations. Shale producers have been able to stay in business only by attracting hundreds of billions of dollars in financing from bond and share sales and bank loans. Over 2008-17, US exploration and production companies raised $293bn from bond sales, according to Dealogic.

Continued improvements in the techniques of horizontal drilling and hydraulic fracturing have brought costs down sharply, however.

Scott Sheffield, chairman of Pioneer Natural Resources said its wells in the Permian Basin of Texas and New Mexico were now 300 per cent more productive than four years ago, driving down the price needed for them to make a profit.

"In 2014, our break-even price in the Permian Basin was probably $55 or $60 a barrel," he told the Columbia Global Energy Summit last week. "I would never have thought that the Permian Basin could drive down the break-even price to the low $20s. And we did it."

As crude prices have climbed since June last year, US exploration and companies' shares, which typically follow the commodity, have lagged behind. This month, however, they have started to rise. Since the start of April, shares in EOG Resources and Continental Resources are up 11 per cent, and for Pioneer Natural Resources they are up 17 per cent.

Market valuations had been held back by concerns including the industry's cash outflows and low returns on capital, and fears that surging US production might again create a glut in world markets and send prices tumbling as it did in 2014.

But in recent months many shale companies have been saying that they will focus on improving returns rather than growth at all costs. Several have announced increased dividends and share buybacks, including Anadarko Petroleum, Devon Energy and Hess.

"Investors are becoming more confident that US shale isn't going to be a runaway train," said Trip Rodgers of BP Capital Fund Advisors, an energy investment management firm.

With growing threats to global oil supplies, including the crisis in Venezuela, fears of another slump in prices are also fading.

"A lot of investors are still scared from oil collapse of 2014 and 2015," said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors. "They are starting to get over their fear and look at the fundamentals again, and the fundamentals are very supportive."

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Earlier:

2018, April, 20, 09:25:00 U.S. PETROLEUM DRILLING UP 35% API - natural gas and oil drilling and completions rose more than 35 percent over 2017 levels signaling the strength of the U.S. natural gas and oil industry. In addition, the success rate for exploration of natural gas and oil was more than 60 percent, the highest rate since 2009.

2018, April, 18, 13:07:00 U.S. OIL PRODUCTION +125 TBD, GAS +1,078 MCFD EIA - Crude oil production from the major US onshore regions is forecast to increase 125,000 b/d month-over-month in May from 6,871 to 6,996 thousand barrels/day , gas production to increase 1,078 million cubic feet/day from 65,829 to 66,907 million cubic feet/day .

2018, April, 6, 18:15:00 U.S. OIL PRODUCTION UP 5% EIA - Annual average U.S. crude oil production reached 9.3 million barrels per day (b/d) in 2017, an increase of 464,000 b/d from 2016 levels after declining by 551,000 b/d in 2016. In November 2017, monthly U.S. crude oil production reached 10.07 million b/d, the highest monthly level of crude oil production in U.S. history.

2018, March, 16, 10:15:00 U.S. PETROLEUM DEMAND: 20.3 MBD API - Led by gasoline and seasonal demand for heating fuels, U.S. petroleum demand hit 20.3 million barrels per day (MBD) in February. Demand was up by more than a million barrels per day from February of last year, nearing record highs not seen for more than a decade.

2018, March, 12, 08:40:00 U.S. OIL & GAS: 10.3 MLN JOBS API - “The oil and natural gas industry is a major contributor to the American economy and helps meet America’s constantly increasing energy needs. We support more than 10.3 million U.S. jobs and contribute $1.3 trillion to the U.S. economy - benefits that are felt across the country,” said API Director of Upstream and Industry Operations Erik Milito.

2018, March, 9, 13:35:00 U.S. OIL EXPORTS - 2017: 1.1 MBD EIA - Exports grew to 1.1 million barrels per day (b/d) in 2017, or 527,000 b/d (89%) more than exports in 2016, in the second full year of unrestricted U.S. crude oil exports. This is the largest single year-over-year increase of a petroleum (crude oil and petroleum products) export since 1920.

2018, February, 27, 13:55:00 U.S. OIL PRIODUCTION UP TO 10.2 MBD API - U.S. crude production rose to 10.2 million barrels per day (MBD) in January – the highest monthly output on record, according to API’s monthly statistical report. This was an increase of 1.1 percent versus December and 15.1 percent from January 2017.