You could quote the old proverb that “all good things must come to an end.” and applying it to the shale boom would be partially correct. We just need to add a couple of other factors into the possible demise of shale.
There are several reasons for concern, including the loss of investor confidence. And then there is also the financial stress and operational problems caused by stubbornly low oil prices.
Overall slow down in production
But the most telling evidence comes from the U.S. Department of Energy. In its weekly forecast published on October 9, the EIA said “U.S. oil production grew by less than 1 percent in the first half of 2019, down from almost 7 percent growth over the same period last year. Although U.S. production is expected to reach an average of 12.2 million barrels per day (Mbd) this year, growth has been slower.”
“We’re getting closer to peak production and we are reaching the peak of the general physics of these wells,” James West, a managing director at Investment bank Evercore ISI, told the Wall Street Journal.
The prospect of limited growth is real along the Permian Basin. The number of crews that prepare a site for drilling and production has been falling since July this year, reaching an all-time low. Energy Fuse notes that even hotels in the region have suffered, with revenue per available room “falling 32 percent year-over-year in August, and declining 21 percent year-to-date.”
Pessimistic mood among investors
Without money backing a company up, it’s dead in the water. And many investors have lost patience with the pursuit of endless growth and have abandoned companies that have not cut back and prioritized their cash flow.
The latest quarterly Dallas Fed energy survey contains anonymous comments submitted by oil industry executives.
“The overall industry conditions are not good. Prices are too soft and erratic, and costs are too high,” one wrote, adding, “My outlook for the business is pessimistic right now.” Another wrote that they expected “a slow and continued decline in drilling, with a focus on streamlining operations.”
Strange as it may seem, shale output is what put the U.S. on the road to energy independence, all while enhancing our energy security – but despite that – the indicators still point to shale production reaching a plateau.
