1MM-bpd Drop in US Shale Output Possible by 2021

1MM-bpd Drop in US Shale Output Possible by 2021
ESAI Energy has attempted to determine just how much output from domestic shale basins could change through 2020.

Amid the recent steep drop in oil prices, U.S. exploration and production companies have been taking steps to rein in their active rig counts, capital spending plans and crude production levels.

Pointing out that a “new normal” placing greater emphasis on fiscal discipline and strong balance sheets has arrived for U.S. shale producers, ESAI Energy LLC has attempted to determine just how much output from domestic shale basins could change for the rest of 2020. The consultancy determined that the drop in production likely falls somewhere between 170,000 and 1 million barrels per day (bpd).

“So far, we are living in a market of sub-$40 (per barrel) or even sub-$30 oil,” commented ESAI Energy Shale Analyst Elisabeth Murphy in a written statement emailed to Rigzone. “But a year is a long time.”

ESAI has outlined three production cut scenarios based on oil price ranges. The three cases, by descending levels of severity, include:

  • Scenario 1: With a sustained price below $40 per barrel, shale output would fall by nearly 1 million bpd by the end of 2020. Industrywide, restructuring would occur on a broad scale, numerous smaller E&P firms would cease operations and the number of bankruptcies would go up.
  • Scenario 2: Should the West Texas Intermediate (WTI) crude benchmark price rebound “fairly quickly” to the $40 to $50 range, domestic shale production would be down by about 330,000 bpd by year’s end.
  • Scenario 3: Under a more optimistic case in which the WTI recovers to more than $50, shale output by the end of 2020 would decline by a relatively modest 170,000 bpd. In this case, ESAI contends producers would focus on maintaining – rather than growing – output, paying down debt, achieving free cash flow and maintaining a dividend to shareholders.

To add context to the above estimated cuts in production, the U.S. Department of Energy’s Energy Information Administration (EIA) reckons that 7.7 million bpd of domestic crude output in 2019 came from low-permeable shale, sandstone and carbonate rock formations. The EIA estimate represents approximately 63 percent of total U.S. crude production for 2019.

To be sure, ESAI anticipates some improvement later this year.

“We still expect a recovery in prices in the second half,” stated Murphy. “So, we may end up somewhere in between scenario 1 and 2.”

To contact the author, email mveazey@rigzone.com.


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