• 3 minutes Shale Oil Fiasco
  • 7 minutes "Leaked" request by some Democrats that they were asking Nancy to coordinate censure instead of impeachment.
  • 12 minutes Trump's China Strategy: Death By a Thousand Paper Cuts
  • 16 minutes Global Debt Worries. How Will This End?
  • 1 hour americavchina.com (otherwise known as OilPrice).
  • 4 hours Forget The Hype, Aramco Shares May be Valued At Zero Next Year
  • 39 mins Democrats through impeachment process helped Trump go out of China deal conundrum. Now Trump can safely postpone deal till after November 2020 elections
  • 2 days Wallstreet's "acid test" for Democrat Presidential candidate to receive their financial support . . . Support "Carried Interest"
  • 19 hours Natural Gas
  • 2 days Everything you think you know about economics is WRONG!
  • 10 hours Joe Biden, his son Hunter Biden, Ukraine Oil & Gas exploration company Burisma, and 2020 U.S. election shenanigans
  • 5 hours POTUS Trump signs the HK Bill
  • 53 mins READ: New Record Conoco Eagleford Vintage 5 wells, their 5th generation test wells . . . Shale going bust . . . LAUGHABLE
  • 47 mins Iraq war and Possible Lies
  • 1 day 2nd Annual Great Oil Price Prediction Challenge of 2019
  • 1 day Winter Storms Hitting Continental US
  • 23 hours Aramco Raises $25.6B in World's Biggest IPO
  • 15 hours My interview on PDVSA Petrocaribe and corruption
Alt Text

Iraq Is Finally Ready To Solve Its Biggest Oil Problem

The central Iraqi government said…

Alt Text

All Eyes On China As Oil Demand Dwindles

A gloomy oil demand growth…

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