What investors are watching in shale
Stephen Berman, senior equity research manager at Canaccord Genuity focused on exploration and production companies operating in several major North American shale plays, explains what he is watching in 2017, what he expects for operator M&A activity and why stacked pay zones are so important in today’s shale world.
On the E&P’s you cover, which storylines are you following this year?
Not a day goes by when the management of these companies don’t ask how they can drill a well better. They want to get more efficient. This year it might get a little more challenging. The cost to hire a rig may go up. The cost to hire a frack crew may go up. In general, when you ask management of these companies, they think they can keep at least 50 percent of the savings they got in the downturn. That will be something to keep a big eye on.
Will M&A activity continue at a strong pace in 2017?
I think you will see a lot of public on private deals—public backed companies buying private companies. The reason you are seeing that some companies are aggressive to do so is because banks have become less lender friendly to the industry. The private equity-backed companies have achieved what they wanted by proving acreage.
What is your view on OPEC’s impact to U.S. shale in 2017?
OPEC realized after two years they weren’t going to put U.S. shale as an industry out of business. Now, we [U.S. shale industry] compete very effectively in a $50/b oil world. I think that OPEC and the rest of the world sees that the U.S. shale industry is here to stay and I think investors realize that now too.
From the Bakken to the DJ Basin or the SCOOP/STACK play, what has you excited?
One of the things that got people excited about the Permian, the Delaware Basin in particular, was the multiple benches. If we try and take that and look at other basins where that stacked pay hasn’t been realized yet, we are now starting to see that. That gets me excited, we are starting to see more rock within these plays and there are multiple benches in other areas outside of the Delaware in the Bakken or Eagle Ford.