The shale oil revolution that began in 2007 has reshaped every facet of the oil and gas markets. The small independent producers that launched and drove the revolution grew over time , merged with one another, traded assets, cut costs, revamped their portfolios, and revolutionized financial engineering for oil and gas production. Technologies have proliferated, transforming the old business model of “Big Oil.” Despite being temporarily sidetracked by the market recession, the dust has yet to settle on the Shale Revolution.
Although contributing only 5 percent of the world’s oil supply, the shale oil revolution has rocked OPEC and the “majors” the core. Surging supply triggered one of the steepest and longest price declines in recent memory. The resulting market turmoil forced many producers out of business.
The market turmoil has also transformed the mergers and acquisitions (M & A) market. M & A activity among shale producers began in earnest in 2012 .Although deal activity slowed during the recession, M & A deals have jumped considerably since the recovery began. This increased deal reflects the renewed economics and confidence in the domestic shale market.
The market rebound has also effected significant divestures among shale producers. Shale producers began shifting their portfolios in the midst of the recession, a “light to quality”, as one insider quipped. Many shale producers began divesting from the Bakken and other producing basins in favor of the Permian Basin beginning in 2016. This portfolio reallocation continues today and this activity has driven Permian Basin asset prices into the stratosphere while depressing asset prices elsewhere.
What happens next? Economics and history would suggest that the Permian becomes overvalued, driving capital back into other producing basins. Perhaps the larger questions are: can technology continue to drive improvements in well productivity and shale growth? If not, will Big Oil drive more acquisitions to create economies of scale for shale assets? Will international concerns, including OPEC members, step into the U.S. market to acquire shale assets?
Time will tell. One thing that appears certain is that the shale revolution will continue and may create opportunities for Bakken Resources Inc.