Moody's: US drillers won't generate 'meaningful' returns unless oil stays above $50/ bbl

Moody's analysts said in a new research note, as cited by CNBC, the US drillers need oil prices to stay above $50 a barrel and natural gas prices above $3 per mmBtu in order to make a significant return on capital.

Key Points:

“Moody's believes it will be difficult for drillers to cut costs much deeper, and any reductions will be offset by a rebound in the prices that oilfield services companies charge.

For that reason, drillers won't be able to make significant returns on the capital they plow into new production unless benchmark U.S. West Texas Intermediate crude oil and natural gas prices cooperate

The report also aligns with a renewed focus on financial discipline over debt-fueled growth among U.S. producers, widely expressed in second quarter earnings reports. 

Moody's senior analyst Sreedhar Kona concludes in the report, “Despite substantially improved cost structures, E&P companies will be able to generate meaningful capital efficiency, only if the WTI oil price is above $50 per bbl and the Henry Hub natural gas price is at least $3.00 per" million British thermal units.”

Moody's based its finding on a study of 37 U.S. drillers. It studied their operating cash margins and their costs of finding and developing fossil fuels to determine capital efficiency.”