“By now it should be abundantly clear that the current shale oil business model does not work – even for the very best companies in the industry.
With oil prices below $30 per barrel again, for the second time in four years, and with share prices down at least 50-80% this year alone, the largest and lowest-cost shale oil producers are finally reducing their drilling activity. Survival beats bravado.
Some companies will write off this downturn as an anomalous event as opposed to acknowledging that it is the logical outcome of their flawed business models. This would be a serious mistake.
In fairness, the cause of this downturn and the potential magnitude of it are both quite unusual. This pandemic has created a tremendous amount of uncertainty and outcomes are unknown.
However, while the cause of this downturn is unique, demand shocks are not. They are a normal part of the economic cycle, typically occurring every 5-10 years. Planning for cyclical downturns is something that every company should do…”