Vastly slower U.S. oil growth this year and the prospect of a plateau for the world’s top oil producer have signaled a new and unfamiliar era of self-restraint for the go-go shale industry.
Spending cuts and production declines common to shale wells mean U.S. output growth is expected to brake from 2019’s pace that pushed domestic production past 13 million barrels per day (bpd). Some analyst forecasts for next year call for growth to slow, potentially to a rate of just 100,000 new bpd.
Over the latest decade, the shale revolution turned the United States into the world’s largest crude producer and a force in energy exports. Yet the revolution did not translate to higher stock prices. The S&P 500 Energy sector only gained 6% for the decade, far less than the 180% return for the broader stock market.
The decade-long oil expansion failed to boost profits, which has discouraged investors. The shale industry was squeezed by an OPEC price war that began in 2014, sending U.S. crude prices below $30 per barrel at one point.
Production temporarily slowed, but accelerated into the end of the decade as companies cut costs and grew more efficient. Now, with investor returns flagging, the industry no longer believes in drilling its way to success even at higher prices.
“The drumbeat has been loud and uniform from investors,” said Parsley Energy (PE.N) Chief Executive Officer Matt Gallagher. The shale producer’s spending next year will drop about 15% and will not rise even if oil prices do, instead using higher returns to pay down debt, he said.
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