U.S. Shale Juggernaut Shows Signs of Fatigue
By Bradley Olson and Lynn Cook
American shale drillers, which defied expectations and upended traditional oil markets by increasing production in the face of lower prices, are finally showing signs of slowing down.
U.S. oil output remains robust and may still surpass the record annual average of 9.6 million barrels a day, set in 1970. But companies, confronting technological, operational and financial obstacles, are starting to tap the brakes on drilling.
The pace of innovation that allowed shale drillers to maintain production even as prices fell appears to be slowing, experts say. The cost of labor and services, meanwhile, is rising in the most popular oil fields, driving up drilling expenses. And companies are facing a backlash from investors, who have grown weary of drillers focusing on growth over profit and are insisting they live within their means.
Future oil production is notoriously difficult to predict, and a surge in prices could certainly improve the economics of American shale. But a growing chorus of oil industry leaders, including some shale trailblazers, believes U.S. growth may peak sooner than government forecasters have anticipated -- a development with ramifications for global oil markets.
In recent years, shale production has reliably filled any voids in world supply, effectively taming volatile price gyrations. Potential limits to shale growth call into question predictions that this trend will continue in the future.
"There are no new shale plays that have come forward," said Mark Papa, chief executive of Centennial Resource Development Inc. and former CEO of EOG Resources Inc. "Their ability to spew forth infinite streams of oil is really just a myth."
The U.S. oil rig count, typically viewed as a proxy for activity in the sector, grew 6% in the third quarter -- a marked deceleration from the previous four quarters, when it rose more than 20% on average.
American oil production has averaged roughly 9.16 million barrels a day so far this year, according to data from the U.S. Energy Information Administration. Last month, the EIA cut its forecast for U.S. oil production, saying it now expects the industry to end the year at 9.69 million barrels a day, down from 9.82 million.