Shale Oil Pioneers Say the Boom is Ending



Shale Oil Pioneers Say the Boom is Ending
Two shale pioneers think the days of relentless production growth from US unconventional oil fields are ending.

(Bloomberg) -- The days of relentless production growth from U.S. shale oil fields are ending, potentially aiding OPEC’s years-long effort to drain a worldwide supply glut, according to industry pioneers Scott Sheffield and Mark Papa.

Investor calls for shale producers to shut down rigs and stop burning through cash are being heeded, Pioneer Natural Resources Co. Chief Executive Officer Scott Sheffield said on Tuesday. Across the American shale industry, output growth will slow next year, providing a boost for crude prices through the early 2020s, he said.

“I don’t think OPEC has to worry that much more about U.S. shale growth long term,” Sheffield said during a conference call with analysts. He’s “definitely becoming more optimistic that we’re probably at the bottom end of the cycle regarding oil prices.”

Talk of a shale slowdown reached a fever pitch this year as investors crushed drillers’ stocks and demanded spending discipline. As if on cue, Occidental Petroleum Corp., Apache Corp., Cimarex Energy Co. and Pioneer all are signaling plans to trim budgets.

Mark Papa, who built Enron Corp. castoff EOG Resources Inc. into one of the world’s biggest independent oil explorers and now runs Centennial Resource Development Inc., has been sounding the alarm on shale growth since at least February. In reiterating that warning on Tuesday, he said the slowdown will be more dramatic than he predicted as recently as nine weeks ago.

Beyond 2020

Papa downgraded his 2020 shale growth forecast to 400,000 barrels a day from the 700,000 estimate he discussed in early September.

“This is likely not just a 2020 event,” Papa said during Centennial’s third-quarter results call. “I believe U.S. shale production on a year-over-year growth basis will be considerably less powerful in 2021 and later years than most people currently expect.”

Sheffield sees about 700,000 barrels a day being added next year while the Energy Information Administration predicts that next year’s daily production will expand by 910,000 barrels. Even the EIA’s figure is half of 2018’s increase.

Crowded Wells

For Papa, there’s a more fundamental reason driving the downturn in shale than investor sentiment. Many producers have drilled their best locations and are now turning to lower-quality sites. Some also have been drilling wells too close together, resulting in a loss of overall performance.

The counterpoint to Sheffield and Papa’s gloomy outlook is the supermajors Exxon Mobil Corp. and Chevron Corp., which are ramping up Permian Basin drilling. Each plan to produce about one million barrels a day from the basin by the early 2020s. That may provide a silver lining for independent producers: an opportunity to get bought, Sheffield said.

The majors will have “to decide whether or not to bulk up their inventory over the next two to three years and decide whether or not to acquire any independents,” he said.

--With assistance from Catherine Ngai.

To contact the reporters on this story:
Kevin Crowley in Houston at kcrowley1@bloomberg.net;
Michael Bellusci in Toronto at mbellusci2@bloomberg.net

To contact the editors responsible for this story:
Simon Casey at scasey4@bloomberg.net
Joe Carroll, Carlos Caminada



WHAT DO YOU THINK?


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Rudolf Huber  |  November 07, 2019
OPEC has plenty to worry about. They have learned that getting the oil price back up towards 80 is going to put steroids into shale. Plus shale is way more reactive which means that OPEC players have not even gotten their pants on while the shale boys are already puncturing the ground. This means that there is no price upside for them anymore as shale will cut those short peaks off quicker than they can order a falafel. BUT - and this is important - they still can't seem to balance their budgets with USD 50 oil. They need way above that. This territory is off-limits to them now so it's questionable what their future prospects are. An oil-export-economy that can't seem to balance the books through oil anymore has only two ways to go: reform or down the drain. So many changes ...
Anonymous  |  November 07, 2019
1. Mark Papa was dramatically wrong in late 2017 when he underpredicted 2H17 and FY18 production. He said growth would be much less than predicted and it was much more. 2. Even if growth slows, that doesn't mean OPEC's worries are over. That's at $55ish WTI. As soon as we get back to $65, the disco ball goes back up and the growth resumes in earnest. (Thus tending to knock prices back down.) ------------ Really Mark Papa has many years (going back to 2013) of underestimating shale growth and of overestimating price.