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Is shale oil a sustainable business model? Show more Show less
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The drilling of shale oil has been hailed as revolution that has brought cheap gas and oil to American and made America a net exporter of oil and natural gas. However, there is serious debate as to whether shale is a sustainable business model given the high number of bankruptcies in the sector. What are the positions on the shale operating model?

Shale is a viable, sustainable business model given improvements in technology and prices Show more Show less

The ability for drillers to learn quickly and improve production has brougth down shale's true cost of extraction far below the market price of oil
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Shale drilling has created more jobs in the oil drilling industry

The extraction of "shale" oil—known as "fracking"—has significantly increased the number of jobs available in the industry, and has been a boost to the economy.
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The Argument

Shale oil is a more than sustainable business model and here is why. In between 2010-14, technology developments and high and stable oil prices triggered a massive investment wave in the US shale sector. Investment more than quadrupled, leading to an eightfold increase in shale oil production. The production went from 0.44 (mb/d) to over 3.6 mb/d – the fastest growth in oil production in a single country since the development of Saudi Arabia’s super-giant oilfields in the 1960s.

Counter arguments

Shale oil is anything but a reliable business model. The sector as a whole generated cumulative negative free cash flow of over USD 200 billion in between 2010 and 2014. Throughout this phase, companies were forced to rely extensively on external sources of financing, predominantly debt and receipts from the sale of non-core assets, in order to finance their operations. In addition to issuing bonds, companies benefited from the reserve base lending structure, which is essentially a bank-syndicated revolving credit facility secured by the companies’ oil and gas reserves as collateral. This structure was used heavily by small and medium-sized companies with non-investment credit rating that did not have as easy access to the corporate bond market.


Rejecting the premises


This page was last edited on Monday, 14 Sep 2020 at 06:26 UTC

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