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U.S. Shale Set For Record $30 Billion Free Cash Flow In 2021

U.S. shale producers are expected to generate a combined $30 billion in free cash flow in 2021 amid disciplined capital spending and higher oil prices, estimates from Bloomberg Intelligence show.

This year, shale producers continue to adhere to disciplined spending and is not reinvesting in new drilling more than the cash flows it earns. That’s a U-turn from past boom and bust cycles where the U.S. shale patch loaded up on debt to drill and produce as much oil as possible, contributing to sinking oil prices.

After the 2015-2016 downturn, back in 2017, even Harold Hamm warned his fellow oil and gas producers to be careful as “drillers don’t want to drill themselves into oblivion.”  

The pandemic last year started what analysts have begun to call “a new era” for U.S. shale where returns to shareholders and paying down debts take precedence over production growth and record output.

The expected windfall from free cash flow this year is just one-tenth of the $300 billion in net negative cash flow the U.S. shale industry had lost in the 15 years since the first shale boom, as per Deloitte estimates from last year.

Nevertheless, the expectations of free cash flow this year make analysts optimistic that the U.S. shale patch is at a turning point and will keep discipline for at least another year or two.

“From a financial perspective, shale is entering a new, better era, with higher profitability,” Elisabeth Murphy, ESAI Energy LLC upstream analyst for North America, told Bloomberg.

The first-quarter earnings and conference calls of U.S. producers highlighted a previously unheard-of restraint from public shale firms. Listed producers generated record cash flows, but they are not reinvesting most of those back to drilling. Instead, shale operators are now channeling cash flow toward reducing debts and rewarding shareholders. Despite the first-quarter rally of over 20 percent in oil prices, U.S. shale did not break the promises to keep a lid on production and prioritize returns.

By Tsvetana Paraskova for Oilprice.com

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