While
troubled companies may not be saved by $45 oil, some of the better
operators will turn profitable at $50, said Subash Chandra, an analyst
with Guggenheim Securities in New York. Companies best able to take
advantage will be those with with acreage in North Dakota’s Bakken
shale, the Permian in Texas or the Scoop and Stack prospects in
Oklahoma.
"If oil is at $50, fortunes turn dramatically," Chandra said. "But
the problem is they turn so much that the service companies come in and
raise prices and take a share of it, or if production responds so
quickly that oil has a hard time staying at $50."
While some of the best operators in the most prolific acreage may
boast well break-evens of $35 a barrel, that only includes the cost of
drilling, said Spencer Cutter, a credit analyst with Bloomberg
Intelligence. Expenses like overhead, salaries, taxes and interest
expenses easily add another $10 to $15 a barrel, he said.
"The short answer is $45 a barrel doesn’t save anybody," Cutter said.
"Anyone who was going bankrupt at $30 is still going bankrupt at $45.
You need to see oil sustained at $60 to $65 before you see a real
turnaround in profitability for the sector."
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