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Big Oil Still Gets That Wall Street Money

Saturday, 10 August 2019 | 00:00

As the price of WTI oil, the American benchmark, lingers in the low $50 range, investors in American shale operations must consider if they want to stay in that game. At current prices, many United States oil production operations are not profitable or just barely breaking even. The media has been warning us for a while that such low prices could lead to a change of mind on wall street.

Yet, we have seen this week that investors are still excited by American oil production if—and this is a huge if—the production is done by large, powerful firms with good assets and the ability to withstand temporary price downturns. This week, Occidental announced that it raised $13 billion in debt on $75 billion in orders. The debt is to assist Occidental’s purchase of Anadarko.

Big oil has been taking over the U.S. shale industry, with even Exxon increasing its assets. This is in stark contrast to the early years of the recent shale revolution, when independents and wildcatters dotted the fields in Texas, North Dakota and Pennsylvania. The big players have plenty of advantages, not least of which is their ability to raise capital if and when needed.

It is still possible—even likely—that the big players will slow new wells or mothball facilities if oil prices continue to drop. But the big players can withstand a production drop and plan for the long term. Thus, an investment in big oil is much safer than an investment in an upstart that needs immediate profit to keep going. The Occidental debt raise is just another sign that the shale industry in the U.S. is maturing.
Source: Forbes

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