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.
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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