Shale Drillers in Permian Basin Face Up to the Prospect of Peak Output

Are we close to peak shale production? In the weeks since OPEC+ members agreed to ramp up output, the mood in the US oil business has shifted rapidly.

At an industry gathering this week in Houston’s posh Galleria district, executives and investors addressed the slowdown in domestic growth amid lower prices and concerns about the prospects for demand.

Gone are assumptions of the recent past that shale operators could be financially disciplined while boosting output by no more than 5%. Even that kind of expansion now seems reckless.

“I can make an argument no one should be growing more than one to one-and-a-half percent per year to fulfill demand expansion,” Danny Brown, chief executive officer of driller Chord Energy Corp., said yesterday during a presentation at the Energy Capital Conference.

“At current prices, we’re probably pretty close to peak oil,” he told the conference.

The next sign of how quickly things are cooling could come next week with the latest monthly numbers for US oil wells that have been sunk but not yet fracked — or “drilled but uncompleted,” as per industry jargon.

The so-called DUC count tends to rise when the shale sector wants to wait out low oil prices and then frack when they get higher. The tally has been climbing for the past three months.

If the newest batch of data coming from the US Energy Information Administration on June 10 shows another increase, that would be the longest streak since the early days of Covid-19 five years ago.

And if that turns out to be the case, it will reinforce the argument that the US oil industry — the world’s largest — is plateauing, with the growth of recent years at an end.

“Unfortunately, there’s a lot of people that think — especially in Washington — maybe that can continue,” VanLoh said of the US leading the world in the expansion of oil production during the past decade. “I think it’s a very dangerous assumption.”

–David Wethe, Bloomberg News