How I feel about $40 oil

The price would have to drop to the $30s or lower to dent the bottom line ofmany drillers now working U.S. shale fields, said Katherine Richard, the CEO ofWarwick Energy Investment Group, which own stakes in more than 5,000 oiland natural gas wells.

That’s because many producers have already locked in future returns withfinancial contracts that guarantee the price of their oil for most of the rest of thedecade.

Oil prices took another hit on Tuesday after Saudi Arabia dropped a bombshellon the Organization of Petroleum Exporting Countries: the Saudis, heavyweightof the 13-nation cartel, raised its output last month to more than 10 millionbarrels a day, reversing about a third of the cuts it made the previous month.

Risk management teams buy and sell derivatives such as options contracts thatset a floor and ceiling on the price a company will receive for its oil.

So a 10% slide in the oil price n March won’t have a commensurate impact onactivity, he said.

In the best areas of the Eagle Ford of South Texas, oil prices would have to fallconsiderably for exploration and production companies to lose money on theirdrilling.

In LaSalle County, explorers break even when oil is $36 a barrel or higher, andin nearby Gonzales County, the price is $39, according to William Foiles, ananalyst at Bloomberg Intelligence.

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