US shale oil companies have started to generate free cash thanks to the rise in crude prices, a landmark moment for an industry that has until now relied on an inflow of capital to support its growth.
Leading shale oil producers were able to cover their capital spending on new wells from their operating cash flows by the end of last year, and are generating significant free cash with oil prices at present levels, according to Wood Mackenzie, the research company.
The shift among leading shale producers to becoming self-financing is removing one of the key concerns for investors. US oil companies’ share prices for months lagged behind the crude price as it started to climb last year, but in April they have started to rise as investors have become more hopeful of improved returns.
Andrew McConn of Wood Mackenzie said the larger US shale oil companies needed a crude price of about $53 a barrel to generate free cash. Benchmark US crude was $68 a barrel on Friday.