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Price of oil settles, yet companies still face risks

July 1, 2015 - Industry News Drilling companies have seen steady oil prices in recent months.

After months of market volatility dating back to 2014, oil has settled at a stable price – one that is likely to continue for some time. Reuters market analyst Jack Kemp noted the benchmark price for crude oil has changed little in the past two months. In the last month alone, the difference between the highest and lowest closing price on any given day has been $4.50 per barrel.

The recent lack of of movement is a marked shift from the market activity that occurred in the fourth quarter of 2014 and extended into the second quarter of the current year. In the span of six months, the price of oil per barrel fell roughly 50 percent, seriously affecting global suppliers. However, more so than foreign OPEC competitors that were able to continue oil production at a cheap rate, the U.S. bore an inordinate amount of the price decline burden.

'By hoping for a price turnaround, some drillers may have hedged their bets for too long."

Because the U.S. relies more on expensive fracking techniques in hard-to-access shale regions, domestic producers had a much harder time dealing with the drop in oil prices. Yet with prices finally stabilizing, U.S. drillers are more capable of settling on an action plan moving forward, with less fear of another downturn or excessive volatility.

Companies not fully in the clear
Though oil prices have reached a new normal, upstream producers still have a difficult road ahead of them, considering they are profiting significantly less per barrel than they were last year. A recent uptick in bankruptcies, well closures and rig downtime have forced out smaller competitors, and even larger companies are still refusing to cut their losses and move forward with a more cost-efficient drilling plan, Rigzone reported.

By hoping for a price turnaround, some drillers may have hedged their bets for too long, accruing debts with little chance of turning a profit. Luckily, many companies structured their loan terms so they wouldn't have to fulfill their debt obligations until 2017 or later – a shrewd move that may heighten the chance of future profitability.

While drillers wait out the current low-price environment, the lack of market fluctuation in the past two months has provided some form of brief respite. However, those that are capable of weathering both current and future financial storms will likely be the companies that focus only on proven wells or partner with other businesses to reduce their individual risk.

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