Shell’s troubles in Texas
This week Shell gave one of the best examples yet of why investors need to step back and question the industry promoted view that tight oil and shale gas are a simple assembly line manufacturing process providing cheap abundant oil and gas.
Shell’s troubles in the Eagle Ford and Mississippi Lime plays along with the continued narrowing of where the action is in North Dakota reinforces the reality that economic areas of these plays are much smaller than earlier thought.
The other key take away from the Shell news is that capital expenditures continue to rise faster than oil prices. With the future oil global oil production moving towards unconventional supply whether tight oil or deep water the increasing trend towards higher capital expenditures is a clear indicator of what is ahead for oil prices as well.
Note: Currently clients and advisors at Ravenna Capital Management hold positions in Shell.