Sleepy Shale

The fall in oil prices at the end of last year combined with pressure from investors has led to a slowdown in the U.S. shale industry. 

According to the EIA, the industry has tapped the brakes on US production with a 90,000 bpd decline between December and January.  The previous month saw only a 35,000 bpd increase, one of the weakest monthly increases the industry has seen in months.

The pressure points for the U.S. shale industry not only include the value of oil prices but also the interest of shareholders who are losing patience with unprofitable drilling.  Investors expect returns and there will be an impact on less competitive companies as the entire industry searches for cutbacks across the board.  Two major oilfield service companies, Schlumberger and Halliburton forecast that shale drillers will be forced to collectively cut spending by more than 10% this year.

U.S. shale producers last year again spent more money than they collected, continuing a trend of putting oil output above cash flow and investor returns, according to a Reuters analysis of top independent producers.

The majority of major producers within the U.S. last year spent more on drilling and shareholder payouts than they generated through operations, according to securities filings. Total overspending by the group was $6.69 billion in 2018, according to Morningstar data provided to Reuters by the Sightline Institute and the Institute for Energy Economics and Financial Analysis.

A recent Reuters report shows that an investor who put $100 into the S&P 500 Oil & Gas Exploration & Production Index in 2013 would have had $58.99 at the end of 2018. Similar $100 investments were worth just $9 in Whiting Petroleum Corp, $33.51 in Apache and $38.88 in Devon, according to financial filings. By contrast, $100 in the S&P 500 grew to $150.33 over the same period.

“This is a critical moment” for shale producers, said Clark Williams-Derry, director of energy finance at think tank Sightline Institute. “They’ve lost the confidence of the investors.”

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