While U.S. shale production is booming and the Permian continues to set new production records, the pace of growth is slowing as many companies have recently scaled back production growth targets while investors and bankers continue to be skeptical about the shale industry's returns.
After oil prices crashed in the fourth quarter of 2018, many independent producers trimmed their spending budgets for this year, but investors continue to be unconvinced that they will see steady healthy returns, as evidenced in the market value of many smaller producers, Bloomberg estimates show.
For example, small producers Legacy Reserves and Approach Resources saw their market value plunge by 99 percent and 87 percent, respectively, in the past year. Bigger players, including Parsley Energy, Centennial Resource Development, and QEP Resources, lost 42 to 59 percent of their market value in one year, according to Bloomberg calculations.
Legacy Reserves of Midland, Texas, even filed for Chapter 11 bankruptcy protection last month to facilitate negotiated financial restructuring. And this isn't the first small producer to have done so over the past year.
While the largest players, including supermajors Exxon and Chevron, are expanding their Permian presence and aim to grow production volumes significantly over the next few years, small, third-tier exploration and production companies have been struggling even when WTI Crude prices were above $60 a barrel.
Related: U.S. Accounts For 98% Of All Global Oil Production Growth
Some small players who have been relying on borrowings to finance drilling are now finding themselves in a position to look for options to restructure debt, including by seeking Chapter 11 bankruptcy protection.
According to executives at 161 energy firms responding to the Dallas Fed Energy Survey for Q2 2019, activity in the oil and gas sector was flat in second quarter this year after three years of growth. Oil and gas production rose for the 11th quarter in a row, but the oil production index showed a slightly slower rate of growth, the survey found.
More worrisome was the plunge in the company outlook index, which, after returning to positive territory in Q1, was once again negative for Q2, falling 28 points to -4.5, "pointing to more pessimism about future conditions," the Dallas Fed said.
"The dimming outlooks coincided with a surge in uncertainty, as the aggregate uncertainty index jumped 31 points to 50, the highest level since the index was introduced in 2017," according to the Dallas Fed.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
Comments
Still, the US Energy Information Administration (EIA) in cahoots with BP Statistical Review of World Energy and Rystad Energy is telling us that US oil production is currently 12.1 million barrels a day (mbd). However, they keep quiet about the fact that the figure of 12.1 mbd includes an estimated 2.1 mbd of natural gas liquids (NGLs) which come from natural gas wells as well as such gases as ethane, propane, butane and pentanes and which major oil exchanges neither accept as crude oil nor are they sold as such.
After having grown by 1.54 mbd from 9.36 mbd in 2017 to 10.9 mbd in 2018 according to the authoritative 2018 OPEC Annual Statistical Bulletin, US oil production is projected to decline to 10-11 mbd in 2019 and 10 mbd or even less in 2020. US production growth is set to decelerate sharply from 2020 onwards.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London