Shale Is In A Deep State Of Flux
Oil prices are rising to their highest level in months, with WTI having topped $60 per barrel, but the U.S. shale industry is still showing signs of strain.
“This is a cycle in our industry where only the large well-capitalized companies can grow. Small companies without access to capital are stagnant,” one oil executive in Texas said in response to a survey from the Dallas Federal Reserve. “It is a major industry readjustment period.”
The oil majors are scaling up their operations in the Permian basin, with ambitious plans to ratchet up output. ExxonMobil plans on hitting 1 million barrels per day (mb/d) by 2024 from the Permian, and Chevron hopes to reach 900,000 bpd. U.S. shale is more important than ever to their business plans.
But even as the role of shale is critical to the majors, small- and medium-sized E&Ps are struggling. Poor financial returns, loss of interest from investors, pressure to cut spending and return cash to shareholders, and encroachment from the majors are tightening the screws on smaller drillers. The “shrinkage in market capitalization of some companies is breathtaking. These loses translate into a loss of interest in further direct investments in the drilling of new oil and/or natural gas prospects,” another respondent said in the Dallas Fed survey.
A few other concerns seemed to dominate the thinking of Texas oil executives:
- “Qualified young professionals are avoiding joining the oil and gas industry.”
- “Pipeline constraints in the Permian Basin continue to cost us up to $20 per barrel and have a significant impact on capital expenditures. This cost changes month by month, making revenue estimation difficult.”
- “Smaller independents are competing with a different animal that is too expensive to tame. Deep pockets for manufacturing oil and gas have taken over the patch here.”
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