Shale Pioneer Mark Papa: Expect M&A Wave In Shale

Slowing U.S. crude oil production growth will likely lead to a new wave of consolidation across the U.S. shale patch, where the big players will acquire the ‘smaller guys’, shale pioneer Mark Papa told Reuters in an interview published on Tuesday.

Papa, who is also now also non-executive board chairman at the world’s biggest oilfield services group Schlumberger, expects U.S. production to grow at a much slower pace in 2020 than the EIA predicts.

In its December Short-Term Energy Outlook (STEO), the EIA expects U.S. crude oil production to grow by 900,000 bpd this year to average 13.2 million bpd. This year’s growth will be slower than the 1.6 million bpd increase in 2018 and the 1.3 million bpd rise in 2019, according to EIA’s estimates.  

Papa, however, sees U.S. oil production rising by just 400,000 bpd this year. Over the next five years until 2025, U.S. crude oil production growth could be between 100,000 bpd and 500,000 bpd, depending on the oil prices, according to Papa.

The shale pioneer expects U.S. shale to be a less powerful force on the global oil market over the next decade.

“I’m not saying that the U.S. shale oil will go away but I’m saying it will become a less powerful force as we go through the 2020s than it was in the previous decade,” Papa told Reuters.

U.S. shale producers are breaking even at an average U.S. oil price of US$55 a barrel, according to Papa. 

As capital availability to smaller companies is scarce while investors want returns, Big Oil will likely “gobble up” the smaller guys in the U.S. shale patch over the next five years, and companies like Exxon and Chevron will become even bigger, Papa told Reuters.

Analysts expect bankruptcies in the shale industry to increase this year, while mergers and acquisitions are also set to rise as a growing number of distressed U.S. oil and gas firms and few funding options could mean that the ‘smaller guys’ could be acquired by bigger players or the smaller guys could team up to scale operations and cut costs.  

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:

• The Unexpected Consequences Of Germany’s Anti-Nuclear Push
  
• Why U.S. LNG Can’t Win In Europe
  
• The World's Most Expensive Oil Nears $100 Per Barrel