The Shale Energy Bust Is Starting

OilPrice.org published a piece this week called “Warning Signs Flash For U.S. Shale” :

The shale tidal wave may finally be starting to ebb.

The largest oilfield services company in the world says that shale drilling activity is slowing, creating an uncertain outlook for 2019.

The recent volatility in oil prices has created “less visibility and more uncertainty” on spending by shale companies in 2019, Schlumberger’s CEO Paal Kibsgaard said on an earnings call on January 18. Shale drillers are “generally taking a more conservative approach to the start of the year, again delaying the broad based recovery in the E&P spend that we expected only three months ago,” he said.

Kibsgaard said that spending from the shale industry could be flat or down this year relative to 2018. That could translate into lower drilling activity, while E&Ps focus on drawing down the enormous backlog of drilled but uncompleted wells (DUCs). Companies working through DUCs could keep production aloft even as drilling slows, but output would likely fall relative to 2018, while decelerating further in 2020.

Schlumberger’s chief executive also warned that the shale industry could see other problems going forward that could be even more significant. Shale drilling suffers from a precipitous decline in output soon after a well is completed. After an initial burst in output, wells see a rapid decline in production. This is not news; it has characterized shale drilling for years.

I believe that the latest signs of the shale slowdown are the early signs of the shale bust that I warned about in November in a piece called “Why Oil’s Crash Will Cause A Shale Energy Bust.” In that piece, I wrote:

I am particularly worried about plunging oil prices because I believe that it is going to pop the shale energy bubble that I have been warning about for years.

Here’s what I wrote in Forbes in 2014:

1 2 3
View single page >> |

For the author's full disclosure policy, click here.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Mad Genius Economics 1 month ago Contributor's comment

Jesse good article and thanks for sharing. How do you think this scenario will change as the Fed reverses rate hikes and asset sales to go back to easy money policies?

George Lipton 1 month ago Member's comment

Good question, I'm curious about this as well.