“Going from nearly 2 million barrels per day annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers,” Raoul LeBlanc, IHS Markit’s vice president for North American unconventionals, commented in a written statement emailed to Rigzone. “This is a dramatic shift after several years where annual growth of more than 1 million barrels per day was the norm.”
Oil prices are expected to be lower and shale producers are also finding it more difficult to obtain financing from the capitral markets. IHS Markit said exploration and production companies are already trading at multiples that are one-half to one-third of what they were in 2017. Smaller companies are finding it more difficult to locate revolving credit sources and some debt markets are only working with the largest shale players.
“The combination of closed capital markets and weak prices are pulling cash out of the system,” said LeBlanc. “Investors are imposing capital discipline on E&P’s by pushing down equity prices and pushing up the cost of capital on debt markets.”
IHS Markit researchers believe that as West Texas Intermediate crude oil prices average $50 a barrell next year and in 2021, operations in the oil patch will be impacted. They anticipate a nearly $20 billion drop in onshore drilling and completions spending over the next three years.
Capital spending, they believe will drop 10 percent to $102 billion this year, slip another 12 percent to $90 billion next year and decline still another 8 percent to $83 billion in 2021.
“It all represents the strongest headwinds for shale producers since the oil price collapse in 2015,” said LeBlanc.