Macro Update: In Recovery

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ROACE remains at depressed levels but is rising due to a recovery in prices and significant capital write-downs. While observers talk of a shale revolution, total capital intensity in the industry has continued to rise over the last 10 years, suggesting supply growth has been driven by an emphasis on growth without regard for returns. In Kimmeridge’s view, the commodity has bottomed and the playbook echoes the script of 1998-1999. While no recovery is a straight line, a return to sub-$35/bbl appears unlikely, and Kimmeridge forecasts a continued recovery.