Goldman cuts Brent forecast to $55/bl by 2020Houston, 18 May (Argus) — Goldman Sachs cut its long-term price outlook on Brent crude as break-even costs for US shale output fall, allowing unconventional producers to sustain operations at much lower prices.
Goldman expects Brent to average $55/bl in 2020 from $65/bl in 2016-18, it said in a 15 May report.
US shale breakeven costs have fallen $20/bl in a year, to $60/bl, and "this flattens and lowers the oil cost curve."
"If the three main US shale plays continue to improve, breakevens can fall to $50/bl by 2020, meaning shale growth and Opec alone can meet global oil demand growth to 2025," it said. The top US shale producing areas are the Bakken in North Dakota and the Eagle Ford and Permian in Texas.
Independent shale producers such as Occidental, Devon and Chesapeake have recently revised up their output guidance for 2015 even though oil is still some 50pc lower than the 2014 highs. An improvement in prices from the near six-year lows and a fall in services costs have made well economics profitable, encouraging efficient producers to look at raising output.
Goldman Sachs highlights Continental Resources, EOG Resources, Pioneer Natural Resources, Cabot Oil & Gas, Concho Resources and Range Resources as the winners.
Mergers and acquisitions in the US shale will be driven by companies that have less acreage in key producing regions and will also be by companies with deep pockets buying "into good quality assets whose owners are struggling to progress the developments," it said. Companies will also acquire assets that make a strategic fit to their existing portfolio.
In a separate report on the oilfield services industry, Goldman Sachs said the supply and demand scenario for jack-ups is precarious with 496 rigs currently marketed against a contracted demand of around 386. With 106 new rigs scheduled to enter the market through 2017, after adjusting for potential cancellations, supply may reach 602, which effectively means a utilization of 64pc.
In the floated rig segment, end-2015 supply stands at 280 rigs, of which 235 rigs are contracted, while about 209 are currently working. With around 61 rigs under-construction and estimated to enter the market by year-end 2017, the industry will still have around 281 by 2017, even if another 62 less capable ones are cold-stacked or retired on top of the 31 currently cold stacked rigs. "In our view, even if demand stays at the current level, utilization would still be only 84pc by 2017," it said.
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