This article was
first published by Seeking Alpha on March 30, 2015.
By Sarfaraz
A. Khan
Several shale
producers have grown rapidly over the last decade, due to the healthy pricing
environment and availability of capital. These companies spent billions in
unlocking the United States' vast tight oil resources and played a key role in
making this nation the world's biggest oil producer, ahead of Saudi Arabia and
Russia. However, some of these producers have also taken a lot of debt to drill
new wells, and the stock of these companies felt the brunt of the oil price
collapse.
Take,
SandRidge Energy (NYSE:SD), for instance which carries the twin evils of a
highly levered balance sheet and a poor performing asset (Mississippi Lime).
SandRidge has fallen by 60% over the last six months, even though the company
has significant hedges in place for 2015. Similarly, the shares of Goodrich
Petroleum (NYSE:GDP), which also has a weak balance sheet and significant
exposure to Tuscaloosa Marine Shale, one of the least economical shale plays in
the U.S, have fallen by nearly 79% over the last six months. Other E&P stocks
with similar problems, such as Approach Resources (NASDAQ:AREX), Exco Resources
(NYSE:XCO) and Halcon Resources (NYSE:HK) have all plunged by more than 50% in
the corresponding period.
Part of the
reason why producers took on debt is the peculiar nature of unconventional
wells; specifically, their decline rates. Oil and gas well typically produce
the highest level of output during the first 24 hours of production.
Subsequently, the reservoir pressure falls and the ….. read full article at Seeking Alpha.
