WSJ


American shale drillers helped turn the U.S. into the world’s top oil producer, topping 13 million barrels a day earlier this year. It likely will be years—if ever—before they reach such heights again.

That is the growing view among top oil and natural-gas executives and experts, who say the coronavirus pandemic is going to thin the ranks of shale companies and leave survivors that are smaller, leaner and less able to pursue growth at any cost.

Coronavirus - ThreatensShale companies led a renaissance of American oil production, helping to more than double output over the past decade. That propelled the U.S. past Saudi Arabia and Russia and made the country an important competitor in the geopolitics of energy and global markets.

But before the new coronavirus sapped global demand for crude, causing shale-drilling companies to shut off wells en masse to avoid losing money, many were struggling to turn a profit, and investors had soured on the sector, restricting companies’ access to capital.

While oil prices have rebounded in recent days and are above $33 a barrel, U.S. output is still poised to fall because companies aren’t drilling enough wells to make up for production declines from existing wells. Shale wells produce a lot of oil and gas early on, but quickly lose steam. Without investing in new wells, many companies’ output would decline by 30% to 50% in just a year, research firm Wood Mackenzie says.

Shale-oil companies have sharply reduced their drilling budgets for the year, with the top 15 by market capitalization slashing spending by an average of 48%, a Wall Street Journal review of company disclosures found. Forty-six independent U.S. producers planned a combined $38 billion in capital investments this year, the lowest dollar amount since 2004, according to Cowen.

“We believe there’s going to be significantly less capital invested in growth in the U.S.,” said Bill Thomas, chief executive officer of leading shale driller EOG Resources Inc., EOG -0.08% which has reduced its capital budget 46% for the year. It is unlikely U.S. production will reach previrus levels in the next several years, he added.

Since mid-March, operators have idled almost two-thirds of the U.S. rigs that had been drilling for oil, bringing the nation’s oil-rig count to the lowest since July 2009, according to services firm Baker Hughes Co. BKR -0.79% That all but ensures U.S. production is going to fall, even if companies decide to restart existing wells sooner than expected.

U.S. oil output fell to 11.5 million barrels a day in mid-May, according to the Energy Department, after companies turned off wells. Some estimate production has already sunk lower.

Pipeline giant Plains All American Pipeline LP estimated producers shut off nearly one million barrels a day of production this month in the Permian Basin of West Texas and New Mexico. In North Dakota’s Bakken Shale, producers cut about 500,000 barrels a day from February to mid-May, state regulators said.

The question is whether the companies ever return to their production highs. The Energy Department now expects U.S. oil production to slide to about 10.8 million barrels a day early next year, down from its January forecast of 13.5 million daily by that time.

Daniel Yergin, vice chairman of IHS Markit, expects U.S. oil output to bottom around nine million barrels a day next summer, before eventually returning to about 11 million barrels a day.

“February was peak shale,” Mr. Yergin said.

He and others say that, even when the industry recovers, the pace of growth is unlikely to match the frenetic boom of recent years, largely because the industry’s relationship with Wall Street has deteriorated after years of poor returns.

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