Is the era of explosive US shale growth over?

U.S. oil production growth slows in response to lower international prices. The trend is likely to expand, demonstrating that the shale industry is in a new stage of its evolution. The days of a one million bpd annual growth rate may be over unless prices pick up.

In the most recent Short-term energy outlookThe Energy Information Administration reported an estimated production rate for this year of 13.2 million barrels per day. That’s up from 12.9 million barrels per day last year, which is already a revision to previous estimates of production growth in 2023 — and a downward revision.

The EIA’s outlook for the immediate future is also quite measured, with the agency expecting the 2025 average to be 13.7 million barrels, barely 500,000 bpd above this year’s average. Of course, these are just estimates and a lot could change if the price changes. Furthermore, half a million bpd in production growth is not too shabby and would be an acceleration of the 2023/2024 growth rate – if the price is right.

The first stage of the evolution of the shale industry is over. This is the “Drill, baby, drill” era when nothing mattered but trying to see how much oil you could get out of the ground, expenses be damned. This was the era of massive piles of debt, burning cash and increasingly grumpy shareholders.

The 2020 pandemic shutdowns and the devastation they wreaked on the industry gave the industry a much-needed reality check and prompted a realignment of priorities that has remained unchanged ever since. Because of this reprioritization, production is growing more slowly, especially in the shale area.

In May, U.S. shale oil production rose to 11 million barrels per day from 10.6 million barrels a day a year earlier, according to EIA data. John Kemp of Reuters noted in a column that this was the lowest since the pandemic shutdown and compared it to the 800,000 bpd increase to 1 million bpd seen in shale in early 2023.

Kemp also noted that the slowdown in production growth is delaying the downward trend in prices by several months, as is typical of the industry. However, there were signs of a further slowdown earlier in the year as well. It’s not like shale drillers decided to start putting the brakes on growth in mid-July.

In April, the EIA reported that the number of wells drilled but not completed, so-called DUCs, rose for the first time in a year in March. The increase wasn’t stunning or anything, at just nine new wells drilled but not fracked, for a total of 4,522. But it suggested that drillers were not putting their all into boosting production — despite WTI prices approaching $90 a barrel at the time.

Now, WTI is barely above $75, which is a considerably lower price level, especially for shale drillers. Yes, costs have come down due to increased efficiency and a consolidation drive that has forced oilfield service providers to scale back their services, but they are still considerable. And it’s all with new priorities that put shareholder returns first, meaning spending plans are designed with that in mind, rather than production volumes.

With prices where they are and little chance of them changing, barring a major war in the Middle East, the slowdown in US shale is likely to extend into the rest of the year. Lower international prices, high domestic costs and shareholder happiness will play a role in this. How significant the slowdown would be, however, is another question, and that’s where those efficiency gains and consolidation benefits would come in.

By Irina Slav for Oilprice.com

More top reads from Oilprice.com