• 3 minutes Don't sneeze. Coronavirus is a threat to oil markets and global economies
  • 5 minutes Boris Johnson taken decision about 5G Huawei ban by delay (fait accompli method)
  • 9 minutes This Battery Uses Up CO2 to Create Energy
  • 12 minutes Shale Oil Fiasco
  • 2 hours Historian Slams Greta. I Don't See Her in Beijing or Delhi.
  • 18 hours We're freezing! Isn't it great? The carbon tax must be working!
  • 2 days Indonesia Stands Up to China. Will Japan Help?
  • 1 day US (provocations and tech containment) and Chinese ( restraint and long game) strategies in hegemony conflict
  • 1 min Let’s take a Historical walk around the Rig
  • 17 hours Beijing Must Face Reality That Taiwan is Independent
  • 1 hour Tesla Will ‘Disappear’ Or ‘Lose 80%’ Of Its Value
  • 2 hours Trump has changed into a World Leader
  • 1 day Might be Time for NG Producers to Find New Career
  • 2 days Environmentalists demand oil and gas companies *IN THE USA AND CANADA* reduce emissions to address climate change
  • 2 days Anti-Macron Protesters Cut Power Lines, Oil Refineries Already Joined Transport Workers as France Anti-Macron Strikes Hit France Hard
  • 3 days Angela Merkel take notice. Russia cut off Belarus oil supply because they would not do as Russia demanded
Alt Text

How China Could Restart The U.S. Oil Export Boom

China may resume purchases of…

Alt Text

Oil Prices Head Lower Despite Small Crude Draw

Oil prices continued to trade…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Is The Shale Slowdown Overblown?

The shale industry has hit a bit of a rough patch, with pipeline bottlenecks, cost inflation and a crowded field contributing to a drilling and production slowdown. But many in the industry are confident that the lull will be temporary.

There are several strategies that shale companies are starting to pursue, such as pivoting to other shale plays, curtailing drilling activity, or drilling wells but deferring completions. According to Halliburton’s CEO Jeff Miller, as reported by Argus Media, these strategies are actually relieving a bit of pressure on the Permian basin and the cost inflation that has come with the concentration of drilling and the associated bottlenecks.

As the Permian runs into trouble, shale companies are pivoting to the Eagle Ford, the Bakken, the Niobrara and even Wyoming’s Powder River Basin, according to comments from executives at a recent conference hosted by Barclays. 

In fact, a flurry of research reports from top investment banks recently also back up the notion that the shale industry will continue to press forward, despite significant headwinds. In June, the latest month for which solid production data is available, the EIA said that U.S. output rose by 230,000 bpd, and about 165,000 bpd of that total came from Texas – evidence that the Permian has not been suffering from a slowdown, at least as of June.

Goldman Sachs says that the growth will continue, and the bank pointed to the fact that the shale industry has increased spending over the course of this year, above original guidance. “[W]e maintain our outlook for 1.3 mn bpd of US oil production growth in 2018, though with producers increasing FY18 budgets by ~7% in aggregate, there could be potential for upside to our 1.1 mn bpd growth estimate in 2019 as capital spend in 2H18 translates into higher growth into 2019,” Goldman analysts wrote in a note earlier this month. “The impact of these capex increases plus Permian bottlenecks in 2019 are likely to be key.” Related: Can India Afford To Cut Iranian Imports To Zero?

For its part, Bank of America Merrill Lynch says that aside from spending increases, improvements in drilling mean that shale companies can continue to grow production while spending less. “Since 2014, drilling times have fallen by roughly 2/3rds in most of the major oil producing basins, resulting in fewer rigs needed to do the same work,” Bank of America Merrill Lynch said last week. Laterals are longer, frac stages have increased and the amount of sand has also increased.

At the same time, because there have been bottlenecks for things like water disposal and frac sand (which has been shipped in from Wisconsin and Minnesota), new water handling services and frac sand mines have opened in Texas – another way that the industry has kept costs down. “These factors combined have significantly improved capital efficiency and have allowed producers to grow output at a similar pace to 2014 while spending roughly 30% less,” Bank of America Merrill Lynch concluded.

While efficiency gains have been important, those factors arguably pale in comparison to the increase in the price of oil. “Without diminishing the significance of efficiency gains, we emphasize that a higher price environment always triggers additional activity in less commercial acreage positions,” Rystad Energy said in a recent report. “In the same way, an oil price collapse leads to unsustainable activity in acreage of low quality.” The consultancy argued that most shale companies have based their budgets and capex plans on a conservative oil price of $55-$60 per barrel, so the gains this year have led to better-than-expected cash positions.

And as for the pipeline bottlenecks, the shale industry expects to ride out the storm, expecting new pipelines to come online in a little over a year.

Related: The Millennials Making Millions In Texas Oil

All told, many see the bottlenecks as a concern that could slow production growth, but ultimately shale executives are confident that new pipelines will ease the burden by late 2019 or early 2020. Also, many think that the cost inflation hitting the Permian is somewhat tolerable. “By and large, efficiency and productivity gains have helped offset rising service inflation costs, with some exceptions in the Permian. In fact, producers and service companies alike forecast costs to soften in 2H18,” Barclays said in a note, summarizing the findings from its recent industry conference.

Not everyone is on board with this sentiment. “The EIA expects output to plateau through Q2 and Q3 next year close to 11.45 million barrels per day (mb/d), before advancing in Q4 as new Permian pipelines come into operation,” Standard Chartered wrote in a note. “However, the current forecast for December 2019 is lower than previous forecasts for April 2019. We think the risks to US output are to the downside; we forecast 2019 growth of 0.86mb/d, below the EIA’s 1.25mb/d forecast.”

Estimates from various forecasters always span the spectrum, so take each one with a grain of salt.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage




Leave a comment
  • Steve on September 18 2018 said:
    "...a flurry of research reports from top investment banks recently also back up the notion that the shale industry will continue to press forward, despite significant headwinds..."

    Good thing there's no conflict of interest with the investment banks doing research for an industry reliant on investment to remain solvent.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play