U.S. oil production will probably take more than two and a half years to return to its record 13 million barrels per day (bpd) production from February, because companies don’t have enough funding to drill new wells even if oil prices were to quickly rise, analytics firms tell Bloomberg.
U.S. crude oil production could still be some 16 percent below its February 2020 peak, according to the average of five major forecasters Bloomberg has polled.
The price crash has led to at least 1.5 million bpd of production shut-ins between the beginning of April and late May, according to data from Genscape. By June, production is expected to drop to 10.9 million bpd, with nearly 1.1 million bpd of the drop coming from shut-ins, and another 800,000 bpd from completion deferrals and rig activity reductions.
Some U.S. shale producers have restarted part of the shut-in production.
However, analysts at Enverus and IHS Markit told Bloomberg that production would likely take until at least 2023 to return to the pre-oil price crash levels as the companies who will survive this price rout will have to earn back the trust of Wall Street, which is all but closed for financing for the oil industry, which has borrowed heavily to grow production over the past decade and a half.
Estimates from Deloitte showed this month that over the past 15 years, the shale industry booked a total of US$300 billion in net negative cash flow, wrote down another US$450 billion in invested capital, and saw more than 190 bankruptcies since 2010.
The industry believes there will be a comeback, although growth will be slow, and may not return to pre-COVID-19 levels.
“Shale is not broke; shale is not gone; shale will come back,” ConocoPhillips Chairman and CEO Ryan Lance told IHS Markit Vice Chairman Daniel Yergin for ‘CERAWeek Conversations’ earlier this month.
“But I do think it comes back slower because there's going to be pressure on companies to confine their capital program, maybe not grow dramatically as they were before, because I don't think the access to capital in the investor community, at least in the public side of the business, is going to be as robust as it was over the last decade,” Lance added.
By Tsvetana Paraskova for Oilprice.com
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I don’t think that the US shale oil industry will ever recover to pre-pandemic level for three reasons. The first is that it has to pay back outstanding debts approaching $1 trillion before it can attract new investments. Investors won’t be rushing to invest in a bankrupt industry.
The second reason is the massive loss of rigs from 613 before the pandemic to 165 now. Rig count is a good way to predict future US oil production. Shale oil production reached 7.28 mbd
in November 2019 when the rig count was 613. That corresponded to 12.23 mbd of US oil production—shale oil is about 60% of total US output. Approximately 600 rigs are needed to maintain 7 mbd of shale oil. The rig count is now 165 so it is unavoidable that production will fall. Based on rig count analysis, US oil production could fall to under 7 mbd or more than 5 mbd less than peak November 2019 levels.
A third reason is that with a breakeven price ranging from $48-$68 a barrel and a well depletion rate of 70%-90% after first year production, the majority of shale oil drillers couldn’t survive prices under $70 a barrel. However, oil prices aren’t projected to hit $70 a barrel before 2022/23.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London