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Is The Sky The Limit For U.S. Shale?

Oilprice profile picture


  • The IEA’s forecast that U.S. shale will dominate the oil market over the next three years because of skyrocketing shale production made global headlines on Monday.
  • The industry could run into a series of headwinds that could slow production growth, starting with demands from investors to see higher returns.
  • There are a variety of bottlenecks that could constrain output and slow growth.

“Last year, it was drill, baby, drill,” John Hess, CEO Hess Corp., told the audience at the CERAWeek Conference in Houston on Monday. “This year, it's show me the money.” He argued that shale drillers are feeling pressure from investors to post profits, which could slow the pace of development.

Yet, so far, while the newfound and highly-touted capital discipline mantra is being talked about quite a lot, it has not translated into a slower pace of drilling. The U.S. is breaking production records every week, and output is growing at a blistering rate.

However, that doesn’t mean that the growth rate will continue, or that U.S. shale will add nearly 4 million barrels per day over the next five years, as the IEA predicts.

There are a variety of bottlenecks that could constrain output and slow growth. For instance, with so much drilling concentrated in a relatively small area in West Texas, there are shortages of oilfield services, fracking crews, labor, and frac sand.

Last year, the backlog of drilled but uncompleted wells (DUCs) mushroomed as shale E&Ps drilled more wells than they could complete. The completion rate is now on the upswing, up 79 percent from a year ago, according to Reuters. But the number of DUCs is also rising, illustrating a persistent bottleneck in completion services. There are other holdups, including takeaway capacity for natural gas and limits on gas flaring, which could hamper oil production.

All of these constraints could lead to cost inflation, as well as slower-than-expected production growth. The most prominent warning on this front could come from Mark Papa, the former chief executive at EOG Resources, a well-known Texas shale driller. Now heading up a smaller shale company, Centennial Resource Development Inc., Papa told the WSJ that the aggressive oil production forecasts from the likes of the IEA and EIA

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Oilprice profile picture
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Comments (4)

OrangeElvis profile picture
Good stuff, thank you.
08 Mar. 2018
It doesn't help things much that every red-blooded American rushed to the dealerships to line up for Suburbans, Tahoes, Jeeps, Durangos & just about every other type of thirsty heavy vehicle. Ever since this swing started and prices fell below $3/gallon. Hummer H2's are as common as Civics these days. We are doing everything we can as fast as we can to bury ourselves in shortage again. Way to learn from the last supply shortage. A new Cash for Clunkers program might already be on the horizon!
johnny..cage profile picture
Don’t blame them blame the fake media IEA/EIA. It’s not even crude the growth is in since mid 17 it’s mainly 45+ condensate.
OrangeElvis profile picture
This fact is just mind-blowing and feeds the "conspiracy theorist" in me that there is a concerted effort to keep a lid on prices.
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