Investors who
took a hit last year when dozens of U.S. shale producers filed for
bankruptcy are already making big new bets on the industry's resurgence.
In
the first quarter, private equity funds raised $19.8 billion for energy
ventures - nearly three times the total in the same period last year,
according to financial data provider Preqin.
The quickening pace of investments from private equity, along with hedge funds and investment banks, comes even as the recovery in oil prices CLc1 from an 8-year low has stalled at just over $50 per barrel amid a stubborn global supply glut.
The shale sector has become increasingly attractive to investors not because of rising oil prices, but rather because producers have achieved startling cost reductions - slashing up to half the cost of pumping a barrel in the past two years. Investors also believe the glut will dissipate as demand for oil steadily rises.
That gives financiers confidence that they can squeeze increasing returns from shale fields - without price gains - as technology continues to cut costs. So they are backing shale-oil veterans and assembling companies that can quickly start pumping.
Data on investments by hedge funds and other nonpublic investment firms is scant, but the rush of new private equity money indicates broader enthusiasm in shale plays.
"Demand for oil has been more robust than anyone imagined three years ago," said Mark Papa, chief executive of Centennial Resource Development Inc (CDEV.O).
Papa referred to the beginning of an international oil price crash in 2014, which took many firms in the shale sector to the brink of bankruptcy.
Centennial is a Permian oil producer backed by private equity fund Riverstone. Papa, a well-known shale industry entrepreneur, built EOG Resources Inc (EOG.N) into one of the most profitable U.S. shale producers before he retired in 2013.
The quickening pace of investments from private equity, along with hedge funds and investment banks, comes even as the recovery in oil prices CLc1 from an 8-year low has stalled at just over $50 per barrel amid a stubborn global supply glut.
The shale sector has become increasingly attractive to investors not because of rising oil prices, but rather because producers have achieved startling cost reductions - slashing up to half the cost of pumping a barrel in the past two years. Investors also believe the glut will dissipate as demand for oil steadily rises.
That gives financiers confidence that they can squeeze increasing returns from shale fields - without price gains - as technology continues to cut costs. So they are backing shale-oil veterans and assembling companies that can quickly start pumping.
Data on investments by hedge funds and other nonpublic investment firms is scant, but the rush of new private equity money indicates broader enthusiasm in shale plays.
"Demand for oil has been more robust than anyone imagined three years ago," said Mark Papa, chief executive of Centennial Resource Development Inc (CDEV.O).
Papa referred to the beginning of an international oil price crash in 2014, which took many firms in the shale sector to the brink of bankruptcy.
Centennial is a Permian oil producer backed by private equity fund Riverstone. Papa, a well-known shale industry entrepreneur, built EOG Resources Inc (EOG.N) into one of the most profitable U.S. shale producers before he retired in 2013.
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