It is possible that many shale producers in the U.S. will see their production plateau over the next few years. The phenomenal expansion experienced in America’s oil patch will likely come down from their stratospheric growth rates. A few analysts see production from many independent producers reaching a plateau by 2016.
As that occurs, the effects could ripple through the finance industry. Fuel Fix reported on the potential saturation of private equity in the oil patch, as a gold rush mentality has too many funds chasing after too few opportunities. “Are we at the point of saturation? Yes, or we’re very close to it,” said Mark Honeybone, a partner at private equity firm Energy Spectrum Capital. A growing number of firms will begin to see their investments not produce a return. “Those will be losses that the funds absorb,” he said. “That will hopefully be washed out by the successes.”
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Still, the shale revolution may be finally going global. This year is expected to be the most active year for shale drilling worldwide, with an estimated 400 shale wells drilled outside of North America. Countries like Argentina, China, and Russia are projected to have vast oil and gas reserves trapped in shale. It is still too early to tell whether or not any of these wells will be successful. Analysts from Wood Mackenzie suggested that maybe one in five shale wells drilled in foreign markets could reach commercial viability. Many of the conditions that made the U.S. shale experience so successful do not exist in other countries. For example, many landowners do not own the mineral rights beneath their land, giving them little incentive to support drilling. Also, many other countries have higher taxes in place, making it less profitable to produce.
By Charles Kennedy of Oilprice.com