Shale's Running Out of Survival Tricks as OPEC Ramps Up Pressure

All that effort did was push prices lower and expectations for a price recovery further out into the future. Now shale companies face a grim future, having played most of their best cards.

“There is limited scope for further production cost reductions,” Mike Wittner, head of oil-market research for Societe Generale, said in a note to clients. “While technological and efficiency improvements may continue gradually, oil company renegotiations with contractors are essentially done, and so is the rapid shift to focus only on core areas.”

Shale drillers aren’t the only ones hurting. OPEC’s strategy is causing pain for its members. Saudi Arabia is said to be considering selling stakes in state-owned companies to help stem a budget deficit that reached 20 percent of its economy. Venezuelan Oil Minister Eulogio Del Pino said the industry is “at the door of a catastrophe” if crude production outstrips storage capacity.

Supply Glut

Even a plunge in U.S. output may not be enough to drain a global supply glut that has almost 3 billion barrels of oil and products like gasoline in developed countries’ storage tanks, according to the International Energy Agency. The world will likely be oversupplied by about 1 million barrels a day through the first half of next year before balancing, Jefferies LLC analysts including Jason Gammel said in a Dec. 18 research note.

“Most companies have gone into shrinkage mode, saying their goal is to stay flat and make it through this market,” Raoul LeBlanc, an analyst with IHS Inc. in Houston, said. “The current price is unsustainable. Unfortunately, we have to sustain it for a while longer.”

--With assistance from Justin Morton and Pietro D. Pitts.

To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net. To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net David Papadopoulos, Dan Stets.