"It’s Terrible Out There": Lack Of Greater Shale Fools Leaves Private Equity In A Bidless Panic

On one hand the US shale industry has never had it better: following dramatic technological and efficiency improvements in recent years, US oil output is not only at an all time high at 11.9 MMb/d, but is the highest of any OPEC or non-OPEC nation in the world. Oil production is so high, in fact, that as of October 2018, the US is now energy independent. Alas, this production glut blessing is also a curse, and according to one industry titan, US production growth could slow by as much as half this year.

Continental Resources’ Harold Hamm said that shale growth could decline by as much as 50% this year compared to 2018, OilPrice reported. Hamm said that a lot of shale E&Ps are trying to keep spending within cash flow. This newfound mantra of capital discipline has been imposed on the shale industry after a decade or so of a debt-fueled drilling frenzy.

“Producers have become more disciplined in their approach to capex,” Hamm said at the Argus Americas Crude Summit in Houston this week. “Several years back growth was a huge consideration. That consideration has been much less. The peak consideration now has been — are you overspending cash flow. Are you living within cash flow?”

The signs of a shale slowdown have been mounting. The rig count fell sharply in recent weeks. Production growth has already begun to slow. Schlumberger, the world’s largest oilfield services company, has warned that it is already seeing shale companies pulling back on drilling activity.

Meanwhile, even though the broader junk bond market has thawed, and new bond deals are once again coming to market, the same is not true for US energy companies. In fact, companies in the E&P sector have not held a single bond sale since the start of November, according to Dealogicwhile share sales have also slowed. The data suggest that after a record-breaking boom in US oil output in 2018, growth will be weaker this year... much weaker if Hamm is correct.

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