US shale output growth to slow in second half of 2017

After putting pressure on already oversupplied oil markets with a steady rise in production and rig count earlier this year, the US shale oil industry could be looking at slower growth towards the end of 2017 as companies are forced to cut operating costs and control capital expenditure.

Shale producers have in the past relied heavily on capital input to fund growth. While that is unlikely to change over the short-term, analysts believe huge capital injections have come at the expense of profitability.

“The trends across shale producers, be they small cap, large cap or fully integrated, has been fairly consistent. Production is going up, but only because spending continues to grow, cutting into profitability,” Miswin Mahesh, oil market analyst with Energy Aspects, told Argaam.

“Investors have clearly started to focus on profitability, which puts shale producers in a Catch-22. If they focus on profitability, then they will have to curb spending. But if they curb spending then production will not grow,” he added.

Shale drillers have turned to revising production targets or cutting spending.

Pioneer Natural Resources, a top-tier US shale firm, lowered its production growth estimates for 2017 to 15 percent-16 percent from 15 percent-18 percent in its Q2 2017 estimates.

Also in the last quarter, Anadarko Petroleum Corp. reduced its full-year capital guidance by $300 million to between $4.2 billion and $4.4 billion.

The recent disruption from Hurricane Harvey has also brought to front the additional risks that shale producers could face.

The flooding from the tropical storm forced US Gulf of Mexico operators to shut down approximately 236,000 bpd of crude oil output as of Aug. 31, London-based IHS Markit said.

This was equal to around 13 percent of total Gulf of Mexico production.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com