Shale Oil: Production Increases/Capital Budgets Cut

Bloomberg has an article up on shale production growth, which it states is growing at double-digits:

Growth is slowing but still strong: the U.S. will add about 1.45 million barrels of oil a day on average this year, down from 1.6 million in 2018, according to the Energy Information Administration.

The tumble in oil prices at the end of 2018, combined with investor demands for fiscal discipline, has prompted most shale executives to only invest what they earn in cash flow, ending years of debt-fueled growth . . . On average, U.S. explorers have cut their capital budgets 4 percent but are predicting a 7 percent increase in production, according to RS Energy Group, a Calgary-based researcher.

The U.S. will likely pump a record 12.4 million barrels a day this year, 13 percent higher than in 2018, according to the EIA.



The Bloomberg article provides some interesting production forecasts, but I think it leaves out an important detail that was brought up by Oilprice (January 2019):

The backlog of DUCs [Drilled But Uncompleted Wells] has continued to swell, essentially uninterrupted, for more than two years. The total number of DUCs hit 8,723 in November 2018, up 287 from a month earlier. That figure is also up sharply from the 5,271 from the same month in 2016, a 60 percent increase . . . Some level of DUCs is normal, but the ballooning number of uncompleted wells has repeatedly fueled speculation that a sudden rush of new supply might come if companies shift those wells into production. 

I can't help but wonder the following:

1. Are investors finally being serious in demanding fiscal discipline? The Bloomberg article isn't the first time I've heard this. I'm sure I've heard this over the last 1 to 2 years. Current history doesn't appear to indicate that shale corporations have ever been serious about financial discipline as per a recent The Wall Street Journal:

The 29 companies in the Journal’s analysis have spent $112 billion more in cash than they generated from operations in the last 10 years, according to data from FactSet, a financial-information firm.

So there is always talk about financial discipline, but it hasn't happened yet as per cash flow analysis.

2. If financial discipline is in place, is this increase in production being driven by the shale industry going through the DUCs? It'll be interesting to see if this gets proved out by following DUC reports from the EIA.