Shale Oil: Beyond 2020

In my previous post about shale oil, I mentioned that there is a wide range of forecasts for 2020 production growth. What about beyond 2020?

OilPrice recently consolidated some quotes from corporate executives. Here's a quote from Scott Sheffield, CEO of Pioneer Natural Resources:

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.

Here we see an emphasis on free cash flow.



The Wall Street Journal and Bloomberg also had articles up on shale. Both quote from the executive director at IHS Markit, Raoul LeBlanc.

This from the Wall Street Journal:

Shale producers expect to spend about 17% less in 2020 than they did this year, according to a Cowen & Co. analysis of 14 companies that have provided spending guidance. Eleven of the 14 plan to cut spending next year.

. . . For companies that predominantly drill for oil, the current budget cuts reflect their limited ability to borrow money as much as they do crude prices, said Raoul LeBlanc, an executive director at IHS Markit. Oil prices have hovered around $60 a barrel for much of 2019 but are a far cry from the most recent bust, when they fell below $30 a barrel. “These guys don’t have the ability to borrow anymore,” Mr. LeBlanc said.

Note that that the 17% spending was in the section of the article dealing with shale natural gas. So I'm not sure if shale oil producers are part of that spending reduction. However, the article does state that current budgets for oil producers are also being cut as they are no longer able to borrow money.

Bloomberg has this:

Next year looks like a potential turning point for the industry as shale specialists focus on harvesting cash and restraining the itch to expand drilling at all costs. The resulting slowdown in output growth, in turn, may mean an end of the U.S. domination of global crude-supply growth. “Generating free cash is easy: stop spending on new wells,” LeBlanc said. “The catch is that production will immediately move into steep decline in many cases.”

I've felt that what shale producers should be doing is following the price of oil up versus driving the price of oil down. I think we've gone through a number of years where the just wasn't any free cash flow. We're finally seeing free cash flow, because they aren't out there drilling away. To me, the point isn't to have the US become the largest oil producer in the world. The point should be to make money for investors.