Shale Could Contract by 1.0 Million b/d Within the Year
By: ESAI Energy
A sustained price under $40 will require significant restructuring, with many smaller producers unable to continue operating; bankruptcies will increase. This results in US shale ending 2020 almost 1 million b/d lower than at the start of the year.
If WTI were to recover fairly quickly to a range of $40 - $50, hedged production and a limited drawdown of drilled but uncompleted wells will initially keep production flat. Yet spending cuts will prevent enough drilling and completions to fully offset decline, resulting in overall US shale ending 2020 about 330,000 b/d lower than at the start of the year.
A recovery in WTI to over $50 should be sufficient to recover and sustain US shale. Producers will concentrate capex on maintaining, not growing production, paying down debt, achieving free cash flow, and maintaining a dividend. In this scenario, US shale ends 2020 with only a slight decline of roughly 170,000 b/d.
"So far, we are living in a market of sub-$40 or even sub-$30 oil. But a year is a long time. We still expect a recovery in prices in the second half." explains ESAI Energy Shale Analyst, Elisabeth Murphy. "So, we may end up somewhere in between scenario 1 and 2".