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Shale 3.0: Capital Discipline in 2019

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   |    Tuesday,April 02,2019

'Shale 3.0' is the new mandate on E&Ps from Wall Street - which is calling on operators to finance operations from cash flow. Below is our first chart, which shows that operators are starting to attempt to live within their cash flow.

A look at oil price (WTI) vs. rig count shows that, even with a 40% increase in oil price ($60/barrel WTI), operators are continuing to shed rigs.

Capital discipline is the new name of the game.

Our next chart shows the former tendency of E&Ps to finance their operations using debt. The mantra in 'Shale 2.0' was to increase spending as commodity prices rise through the issuance of debt.

The chart below shows a new behavior - previously when oil prices rose, debt financing activity would also increase. However in the new 'Shale 3.0', we are not seeing as many debt financings occurring despite rising oil prices - marking a divergence from what we saw in the past.

Deal Activity Also Takes Hit

In this new era of 'Shale 3.0', even M&A activity is not spared. Below are three transactions that have been cancelled as a result of changes in the equity market:

  1. Blank-check E&P Dissolves; Unable to Complete Acquisition
  2. Penn Virginia & Denbury calls off Merger
  3. Earthone Energy, Sabalo Terminate Merger Agreement


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