US Shale Has a Long Road to Recovery

Evidence of the negative outlook for producers can be seen in their spending plans, which are down by almost half to about $54 billion this year. The country now has just 189 active drill rigs, a 72% drop since March and around the lowest level since 2009, when the shale revolution was in diapers.

Even at $40 a barrel, the outlook for new wells is not good. While costs for the best parts of the Permian Basin break even below this level, the bulk of U.S. shale does not. In any case, most shale producers are busy conserving cash to repay their debts.

The big unknown, of course, is the price of oil. If prices rise to $50 a barrel, producers may be encouraged to start adding rigs again and drilling new wells, according to IHS. At that point, output could gain quickly, but even Rystad, the most bullish forecaster, doesn’t see the U.S. returning to the February peak before 2023.

The next level would be the big one. At $60 to $65 a barrel, the U.S. still has the capacity to add 1 million barrels a day for “a very long time,” said Johnson at Enverus.

The big question is how shale producers win back the trust of Wall Street to provide them with the money to do so. “They have the firepower to grow again but not the financing,” said Raoul LeBlanc, an analyst at IHS. “That trust will take some time to win back.”

To contact the reporters on this story:
Kevin Crowley in Houston at kcrowley1@bloomberg.net;
Catherine Ngai in New York at cngai16@bloomberg.net

To contact the editors responsible for this story:
Simon Casey at scasey4@bloomberg.net
Reg Gale, Steven Frank