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The Bakken, Eagle Ford, Niobrara and Permian plays could see lower capital investment if oil prices stay where they are, according to a recent report by Morgan Stanley. As of press time, WTI was around $47 per barrel (bbl).
“While our base case assumption is that oil improves to $80/bbl long-term, the current spot price would warrant a cautious approach to investing in banks exposed to at-risk shale oil regions,” the report said.
If oil stays at $47/bbl, the Bakken and Niobrara would see the greatest reduction in activity because the plays have higher breakevens ($65/bbl and $62/bbl, respectively) than the Eagle Ford and Permian ($50/bbl and $54/bbl), according to the report.
Banks most exposed to major oil shales include Cullen Frost Bankers Inc., Prosperity Bancshares Inc. and TCF Financial Corp. Of banks with $1 billion or more in assets, International Banshares Corp., Guaranty Bancorp and Cullen Frost are among the most at-risk.
“The stocks of exposed banks have declined by 13-25% over the last two months...suggesting the market is pricing in a far more widespread economic contraction than suggested by simply running off half their oil loans,” according to the report. “We are inclined to take a more positive view on some of the larger and more conservative banks in Texas given the sell-off, but not while the price of oil continues to fall on a daily basis. If oil recovers, as we assume, we see the most value in Zions, Comerica, BOK Financial, and Cullen/Frost.”
Morgan Stanley also reported that the Marcellus and Utica shale gas plays are less at-risk economically than the oil plays.
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