Full paper here.
The last five years has seen capital poured into the US shale sector, leading to explosive growth in oil and gas production. This report argues that shale producers are mostly destroying value regardless of commodity prices, because they are the marginal cost players in their industries. Even those operating in the lowest cost basin, the Appalachian basin, are not an exception to this. In fact, Appalachian gas producers be exposed to the worst dynamics as they effectively compete against one another locally and the influx of capital has led to a large oversupply of gas in the region. Even if managers of shale producers realise their predicament, they are faced with the choice of either reducing value destructive investments and seeing the story of production growth fade back to reality, or continuing to invest and hoping in vain that the music never stops. They are thus drilling into oblivion and have no way out. A list of companies that are fundamentally losers and winners is presented at the end.