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The Drilling Frenzy Is Over For U.S. Shale

The Drilling Frenzy Is Over For U.S. Shale

Shale Boom

A few high-profile shale executives say the glory days of shale drilling are over.

In a round of earnings calls, the financial results were mixed. A few companies beat earnings estimates, while others fell dramatically short.

But aside from the individual performances, there were some more newsworthy comments from executives on the state of the industry. A common theme emerged from several notable shale executives: the growth frenzy is coming to an end.

The chief executive of Pioneer Natural Resources, Scott Sheffield, said that the Permian basin is “going to slow down significantly over the next several years,” and he noted on the company’s latest earnings call that the company is also acting with more restraint because of pressure from shareholders not to pursue unprofitable growth. “I’ve lowered my targets and my annual targets, a lot of it has to do with…to start with the free cash flow model that public independents are adopting,” Sheffield said.

But there are also operational problems that have become impossible to ignore for the industry. He listed several factors that explain the Permian slowdown: “the strained balance sheets lot of the companies have, the parent-child relationships that companies are having, people drilling a lot of Tier 2 acreage,” Sheffield said. “So I’m probably getting much more optimistic about 2021 to 2025 now in regard to oil price.” In other words, U.S. shale is slamming on the brakes, which may yet engineer a rebound in global oil prices.

He said that this would be good news for OPEC. “I don’t think OPEC has to worry that much more about U.S. shale growth long-term,” Sheffield said. “And all that is very beneficial. So we are probably going to be more careful in the years 2021 to 2025 because there’s not much coming on after the three big countries that are bringing on discoveries over the next 12 months Norway, Brazil and Guyana.”

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