Goldman Sachs sees shale ultimately victorious in the oil war

WASHINGTON (Bloomberg) - The bruised and battered U.S. shale industry is poised to emerge from the oil crash a winner, according to Goldman Sachs Group Inc.

Shale’s high-pressured wells and short drilling time mean the industry is well positioned to benefit if the current plunge in oil causes long-term damage to production capacity, resulting in a price jump when demand returns, Goldman analyst Damien Courvalin said in a note dated March 31.

Shale’s flexibility is similar to the spare capacity that OPEC stalwarts such as Saudi Arabia and the U.A.E. keep on hand to be able to boost production on short notice, Courvalin said. “This implies that the coronavirus-led demand collapse may ultimately benefit shale and low-cost producers alike.”

The note of optimism runs counter to the steady drumbeat of bad news that’s hit the shale patch since oil prices collapsed amid simultaneous supply and demand shocks. The price plunge instantly made thousands of prospective shale sites money-losing propositions.

Shale wells’ high initial pressure means that there is a strong likelihood that companies can shut them in and later resume production with limited lost capacity, Courvalin said. That’s not the case for many more mature wells that face being shut-in amid low prices and storage and logistics constraints, with production being potentially lost forever, he said.

“Shale’s flexibility is likely to be finally monetized by producers once demand starts to recover to fill any global supply gap,” Courvalin said.