The shale revolution made the US the largest oil producer in the world in the summer of 2018, but now there is little oil left in the ground. If the largest shale companies do not increase production, then most will be able to continue to operate at a profit, according to Wall Street Journal calculations, for another one to two decades. However, if they increase production, for example, by 30% compared to pre-pandemic levels, then in the country’s largest oil field – in the Permian Oil Basin, high-performance wells will have to be closed in a few years.
Previously, the growth rate of shale production made a strong impression, but now most production is not increasing despite high prices and instructions from the White House. The fact is that a few years before the pandemic, disappointed investors began to demand to slow down production growth and pay higher dividends rather than invest in production and continue to increase production. Shale companies also promised to limit spending.
Now American oilmen produce approximately 11.5 million barrels per day, i.e. significantly less than at the beginning of 2020 when they had about 13 million barrels a day.
The Energy Information Administration (EIA) forecasts US oil production growth of almost 5.4% this year.
Large shale companies already have to drill hundreds of new wells to keep production at the same level. Shale wells produce oil very early, but they deplete just as quickly. In 2019, the productivity of thousands of wells fell short of forecasts. Shale players will soon have to spend a lot of money exploring new high-performance areas.
In the best years, the largest company in the Permian Basin, Pioneer Natural Resources Co., increased production by 19-27%. Now it is planned to increase by a maximum of 5%.
Company CEO Scott Sheffield explains that he cannot drill at the same intensity as before due to investor pressure, rapidly declining well productivity and a limited number of wells.
Last year, Pioneer bought two small drilling companies, Parsley Energy Inc., for $11 billion and Double Point Energy. According to Sheffield, oil is left for 15-20 years of work.
Private oil companies increased production in the Permian Basin last year, but Scott Sheffield is confident that they will soon have nothing to produce at this rate.
He believes that even with a barrel price of $70 to $100, American oilmen will increase production by only 2-3% per year.
In addition to limited oil reserves, shale players complain about the rising cost of raw materials, salaries of employees and a lack of investment. In addition, to increase production by, say, 30%, a huge number of new wells will be required.
The five largest shale companies, viz, EOG Resources Inc., Devon Energy Corp., Diamondback Energy Inc., Continental Resources Inc. and Marathon Oil Corp., still have high-performance wells at current production levels for a decade. If they increase production by 15%, there will be enough oil for only six years of operation.
For years, shale traders have reassured investors that they have bought enough land to last decades. In 2018, Continental, for example, claimed that 65,000 wells could be drilled at the Bakken field in North Dakota, which would produce 37 billion barrels of oil. But to drill all these wells, Rystad points out, exploration will have to be carried out over a wider area, and new technologies will be required. According to Rystad, the field will produce no more than 28 billion barrels.
The Bakken field has drilled approx. 18.5 thousand wells. True, high oil prices have now made it possible to increase exploration, but no more than 16.5 thousand wells can be drilled in existing areas with existing technologies. Moreover, only every fifth well will be highly productive, approx. 3.2 thousand.
Now the oilmen themselves understand that their previous forecasts for production and the number of wells were too optimistic.
Now, for example, it is known that if a well is drilled close to an existing one, it will negatively affect the productivity of the old well. Old wells, in turn, can also negatively affect the productivity of new ones.
According to Rystad estimates, the number of highly productive sites in the five largest US fields has decreased over the past five years from 68,000 to 35,000. Moreover, in the main areas of Bakken and Eagle Ford, all the most productive sites have already been used.
As per experts, production has dropped by 80% at the Permian Basin.
EOG, one of the few companies in America now trying to find new ground, invested approximately $300 million in exploration last year. According to experts, if the current level of production is maintained, EOG’s existing blocks will last for 12.5 years, and with an increase in production by 15% – only for 4.4 years. However, EOG itself disagrees with this assessment and believes that at last year’s level of oil production, they will have enough for 23 years.