End of the boom in sight for U.S. shale drillers - WSJ analysis

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Companies in the oil fields of Texas, New Mexico and North Dakota have tapped many of their best wells, resulting in limited inventory that suggests the era in which U.S. shale companies could flood the world with oil is receding, according to a Wall Street Journal analysis.

If the largest U.S. frackers kept their production roughly flat, as they have in recent years, many could continue drilling profitable wells for 10-20 years, but if they raised output 30%/year - the pre-COVID growth rate in the Permian Basin - they would run out of prime drilling locations in just a few years, WSJ reports.

Five of the largest shale drillers - EOG Resources (NYSE:EOG), Devon Energy (NYSE:DVN), Diamondback Energy (NASDAQ:FANG), Continental Resources (NYSE:CLR) and Marathon Oil (NYSE:MRO) - all have about a decade or more of profitable well sites at their current drilling pace, but would exhaust that inventory within about six years if they raised production 15%/year, according to the analysis.

EOG, one of the few companies now trying to find new places to frack for oil and gas in the U.S., has 12.5 years left of inventory if it keeps output roughly flat, but only 4.4 years if it raised output by 15%/year, the WSJ assessment says.

Devon has 9.2 years left at its current drilling pace, which would shrink to 2.2 years at 15% annual growth, WSJ says.

Some companies, including EOG, disputed the notion that they are running low on prime wells; EOG said it is "highly confident" in its inventory of future drilling locations, but CEO Ezra Yacob also told WSJ he thinks peers eventually will need to invest in risky exploratory drilling, because the top-tier drilling locations "are going pretty fast."

ETFs: XLE, XOP, VDE, OIH, FENY, FCG, IXC, XES, IYE

WTI crude oil has breached the $90/bbl level for the first time since mid-2014, and $100 oil has become the consensus expectation.

Comments

[imdaman]

As an example of government interference, we still have an entire pristine Marcellus basin in Western NY untapped due to Demonrat policy while PA across the state line is one of the most prolific producing fracking states
VOTE EVERY DEMOCRAT OUT AND SAVE THIS COUNTRY BEFORE ITS TOO LATE!

[User 21359971]

@imdaman
That would vote in every Republican fascist.

[darnoc111]

@diewolfsschanze So you would rather keep the current fascists!

[User 21359971]

@darnoc111
The Democrats may have many faults, but they are not fascists. Your comment indicates a misunderstanding of fascism. Your political opponents are not ipso facto fascists. The classic Republicans are also not fascists. Only the Trumpers are fascists, and their fat leader bears a striking resemblance to Herman Goggling.

[crazy-like-a-fox]

what would be the sell price for DVN then?

[drooyrich]

Welcome to peak oil .. we were able to push the can further thanks to the dirty and expensive fracking .. but peak oil will soon be with us .. mad max scenario coming .. its going to be very very ugly

[User 21359971]

@drooyrich @ralf @RalfG @

[User 21359971]

@

[User 21359971]

@drooyrich @RalfG@RalfG

[Westexr]

@Apt Learner Yes, you are correct. Since (even before) 1930, folks have said the Texas Permian Basin would run out of oil in 10 years. That is one reason the UT Bureau of Economic Geology has studied the Permian Basin since 1909.

Currently, there is an estimated 30 billion barrels of recoverable oil in the Permian Basin. However, advances in technology will increase that figure.

www.beg.utexas.edu/...

[TheJack]

@Westexr It is amazing to me that "oil investors" don't know this. SMH

[houtex]

@Westexr
Has any credible source ever said it would run out of oil in 10 years? That sounds like a strawman to me but maybe someone has done that. This article isn’t saying that, for one.

[Westexr]

@houtex I don't know of what I would call "a credible source" that said the Permian Basin would "run out." However:

In past decades, there was a group of folks that said we had reached "Peak Oil." That sounded reasonable at the time, but in retrospect, it turned out to be false. We had simply reached a point where most of the easy (inexpensive) to produce conventional oil had been found.

Some of the major oil companies cut back drilling in the Permian Basin in past decades. They just kept pumping their existing conventional oil fields. Some of the majors sold a lot of their existing oil fields to smaller companies. The majors started searching all around the world for new large conventional oil fields.

That changed when horizontal well fracking technology was applied on a large scale and proven successful. The majors then came back to the Permian Basin.

On a slightly different subject, I predict the Texas Permian Basin, and some other Texas oil fields, will soon see a boom in geothermal electrical production. New technology has again changed everything:

https://txgea.org/

[Blue Blood]

Even the best geologists are not perfect and surprises do occur as in Guyana, after Shell left. OPEC is planning to boost output so the shale gang can conserve reserves. By March demand will fall as Spring warms the planet and the Ice Age recedes for another year. Exxon finally found the Mother Lode after decades of exploration and 27 discoveries augur well for future barrels. An FPSO explosion may curtail output from Gulf of Guinea and winter weather may yet halt operations in northern fields. Best wishes to EOG et al for keeping the lights on.

[Tambo210]

Hope today's SP for DVN is not governed by this article.
Oil up strong and DVN trades flat. Other Oilers are doing ok.

[PTR1234]

Read a lot of comments. No where does it say we are running out of oil just that the least expensive places to extract oil are being depleted at a fairly quick rate. There are plenty more place to extract oil but it will be more expensive oil. The time to panic will be if the Saudis/Russians start having issues bringing more oil to the market at a reasonable cost. If their fields start failing then you will need a good bicycle because shale output is only a drop in the bucket.

[Blue Sky & Sunshine]

@PTR1234 "The time to panic will be if the Saudis/Russians start having issues..."

Correct. But its "when" not "if."

This is why forward looking people will electrify their personal transport and solarize their roofs without undue delay.

[Long Time Running]

@PTR1234 , oilsands have a 50 year supply, safe, secure, extraction and shareholder return around $35 barrel, 50 year supply, no exploration risk and taps open to the North American market.

[jodihn]

@Blue Sky & Sunshine perhaps that is the point of the piece? Convince people to keep buying all the electrification they can while there is still a chance/time? Interesting...

[Investor_taken]

Next in line is services based oil companies
SLB, Baker Hughes, PTI, NOV, HP, WTTR, LBRT, PUMP ....

[svetlanakhachaturyan1]

@Soft taco And midstream will be affected as well as oil services by the end of the drilling boom?

[alex.c]

I thought one of the big problems for Shale producers is that Biden will not allow new leases on Federal Land and cancelled all the deals they had made during the Trump admin.
Please correct me if I am wrong, but under a Republican admin, Producers will have access again to very profitable land once more. Which would, for the most part, nullify every thing that is said in this SA article.

Please tell me if I am wrong in my analysis. But I was led to believe that it was this administration that was blocking producers from being able to drill in the places they would like to!

[houtex]

@alex.c
This story is focused on the Permian which is mostly Texas which is mostly not federal lands. There are federal lands in New Mexico that would respond to the dynamic you are outlining. I also think companies “banked” a *ton* of permits in advance but even that wasn’t really needed, in retrospect as
“The Interior Department approved about 2,500 permits to drill on public and tribal lands in the first six months of the year, according to an Associated Press analysis of government data. That includes more than 2,100 drilling approvals since Biden took office January 20. New Mexico and Wyoming had the largest number of approvals. Montana, Colorado and Utah had hundreds each.” www.npr.org/...

[fishermp]

@alex.c
Most of the tight shale plays in the US, both oil and gas are on private lands.

There are some second tier tight oil plays in the Frontier, Turner, Niobrara and Mowry in the Powder River Basin of Wyoming on mostly federal land. There are tight gas plays in the Piceance Basin of Colorado mostly on federal land. There are some second and third tier tight oil and gas plays on federal acreage in the San Juan Basin of New Mexico and the Uinta Basin of Utah. There is federal acreage in the New Mexico portion of the Permian Basin.

In general, all the large first tier plays are on private land: Haynesville in Louisiana, Marcellus and other Devonian gas plays in Pennsylvania, Ohio, and West Virginia, Eagle Ford and Austin Chalk in Texas, Permian Basin in Texas and New Mexico, Bakken in North Dakota, Niobrara in DJ Basin of Colorado, Scoop and Stack plays in the Anadarko Basin in Oklahoma.

[Energy Alpha]

@alex.c partially correct. Most shale production comes from wells on private land so 'no new leases on federal land' is not as big an issue as one might think, and particularly in the short term.

[hawkrnc_19]

Rather than build a sustainable bridge to clean energy our leaders chose to jump over the cliff. If this article is correct it only makes the situation worse.

[Slade_01]

@hawkrnc_19 Lemmings following the EU/UK clown car brigade. November is coming quickly, as will 2024 to start undoing the damage.

[8535911]

Everybody has short memories. The price of gas at the pump today where I live is very close to where it was 10 years ago. My billings show I paid $3.55/gal average In Feb 2012. The pump price here Tuesday was $3.35. Also, a government study in 2013 showed that the average inflation adjusted price of gasoline for the previous 100 years was over $3 per gallon. The fracking boom oversupply and Covid demand reduction in 20-21 gifted us near the lowest inflation adjusted gas price in history for a few months. A $65-$100 crude price range and fewer overseas macro supply shocks are needed to have an adequate supply given the fracking burn rate and replacement costs...Get used to it!

[V1001]

2012 was a huge bubble for oil. Literally at the top of the market bubble. I could also tell you I remember in 2010 filling up my BMW for less than $20, in California no less. It was a dollar something a gallon. It then went into a bubble for some years and crashed after that.

It also doesn't change the fact that higher energy prices tend to crash an economy. Justified higher prices or not, high energy costs can be devastating and non sustainable. The world is already addicted to reasonable or cheap energy. And when that changes it hurts hard and has to come down one way or another.

[kentherbert49]

@V1001 What party was in the White House 10 years ago? I think that explains alot.

[Oil Can]

Folks this is not about worldwide oil volume - there's a butt-ton of it out there.

This is about CHEAP oil. An undeniable trend over the past 30 years; we've been having to look at increasingly difficult places to recover the darn stuff. Fracking and enhanced recovery saved our butt for a little while - and it can continue to save us (along with deepwater, Alaska, etc.) - as long as we're willing to pay the piper.

But the days of finding it flowing out of Jed Clampett's swamp are gone.

As is $40 oil.

Long $XOM, $CVX, (and a ton of smaller players)

[Blue Sky & Sunshine]

This article covers exceedingly old news:
www.ft.com/...

[darnoc111]

If this is right then inflation is not going to flatline any time soon. Which means higher interest rates will continue even if the economy slows down. I don't think that oil companies will suddenly not be able to produce more oil because technology will change and grow to find ways to make even poorer drill sites produce more. Even if oil companies can produce more I think inflation has been ignited and will continue to grow forcing higher interest rates. Rising interest rates are also inflationary adding to the growing inflation. Much of this has been caused by a fed that didn't act quickly and by the endless stimulus by government like child credits and cash payments. If taxes are raised in an effort to drain excess cash then workers will push for even higher pay and a recession will happen. Green energy will put even more pressure on inflation since it is not available all the time and something else like fossil fuels are needed to supply energy when it isn't available. I would expect an eventual contraction in the economy that would slow inflation but not end it.

[Rockhopper Colorado]

@darnoc111 Repeat of the late 70's and early 80's (peak 20% interest rates)

[darnoc111]

@Rockhopper Colorado I still remember Carter wearing a sweater and lowering speed limits to save gas. At least Carter didn't shut pipelines or pull financing, or remove drilling from public lands and then beg our enemies to supply us with oil.

[Apt Learner]

Are these the same people who have been telling us we’re ‘10 years away from running out of oil’ since 1930?

[Steve Fischer]

SU and CVE both have plenty of reserves but we rarely see any of this analysis anymore. Yes the big ones have declining reserves and that limits their value and potential. I'm happy with those two but wouldn't mind finding more.

[Orion1963]

@steve Fischer I'm also a big fan of the Canadian oil sands companies. Like you stated, 30 years of reserves in a world where peak new discoveries has been decreasing exponentially since the 1990's. I'm long CNQ, but all Canadian oil sands are great long term investments. CNQ is up circa 119% in 12 months. Great insight my friend.

[Stockdoc96]

Why is the demand for oil expected to actually continue to grow despite the switch to natural gas and alternative energy sources? Because much of the world's population consumes very little oil, but as an ever increasing % of these disadvantaged populations continue to percolate up into the middle class over time they want vehicles (or bigger vehicles) that consume gasoline and better heat for their homes and things that take oil to make (like almost everything). And then there is just the ever expanding population of the world. So the demand for oil is not going away. And as the price of oil inevitably tracks higher over time, more of the earth's oil (and NG) will become economic so hopefully reserves/supply will keep up with demand.

[Orion1963]

@Stockdoc96 Well stated! You clearly under what the 'wizzards of smart' on CNN don't grasp i.e. that oil is used by Everyone, not just the developed 1st world countries. Thus, India & China's oil/ICE use will be increasing exponentially for 30 years.

[elwalle]

LOL.....6 months ago.........the WSJ said $65 oil was the absolute limit on oil price

[Steve Fischer]

@elwalle Please post a link.

[Slade_01]

@elwalle The classic oil comment was on October 1, 2021 when Cathie Wood said that oil is going the way of whale oil circa 1900. And her great call that oil was unlikely to see $70 again.

www.reuters.com/...

www.cnbc.com/...

[Blackmolly]

@elwalle Remember Jim Cramer saying oil was uninvestable?

[Jeff Pokorny]

I disagree....sure, the best wells are gone, but they'll drill marginal acreage after that. They'll just drill more. It's not like they've ever really made any money at this.

[Slade_01]

@Jeff Pokorny The party in the White House has huge impact on the availability of opportunities. I laughed at the recent call by Democratic Senators to ban the export of US natural gas to lower the price for Americans. They apparently don't understand that their own policies and the lack of a pipeline to the Northeast due to their own actions is the real problem.

[Jeff Pokorny]

@911Slade Of course they don't.

[Energy Alpha]

I’ve read all the comments and see that a number of comments doubt the notion that there are a limited number of economic shale drilling locations remaining. The article is actually correct given a fixed oil/gas price, but doesn’t explore the relationship between oil/gas reserves and price. The author fails to mention that higher oil/gas prices will add many more drillable well locations both aerially and in other deeper reservoirs within a shale field. Wells can also be drilled with tighter spacing in higher commodity price environment. The amount of oil/gas recovered is a combination of technical and economic factors. The number of economic drillable locations is highly correlated to commodity price; that point was missed.