Oil prices have surged more than 75 per cent in the US this month. But don’t expect a quick rebound in supply from shale explorers.
The quick turnaround in oil markets is exposing the shale industry’s Achilles’ heel: lightning-fast production declines. Shale gushers turn to trickles so quickly that explorers must constantly drill new locations to sustain output.
And they haven’t been doing that. Drilling activity touched an all-time US low after Covid-19 lockdowns crushed global energy demand and explorers slashed spending to survive a crash that has erased tens of thousands of jobs and pushed some companies into bankruptcy.
It’s a phenomenon that’s ultimately attributable to the very geology of shale.
Just like a shaken bottle of champagne explodes when its cork is popped, a fracked shale-oil well erupts with an initial burst of supply.
The froth is short-lived, however, unlike old-fashioned wells in conventional rocks that are characterised by steadier long-term production rates. To offset the decline curve, shale explorers used to keep drilling. And drilling. And drilling.
“We just have no new drilling and these decline curves are going to catch up,” said Mark Rossano, founder and chief executive of private equity company C6 Capital Holdings.
“That hits really fast when you’re not looking at new production.”
Shale explorers have been turning off rigs at a record pace because the oil rout has gutted cash flow needed to lease the machines and pay wages to crews.
Going forward, management teams may be hesitant to rev the rigs back up again despite higher crude prices because of fears of flooding markets with oil once again and triggering yet another crash.
Left unchecked by new drilling, oil production from US shale fields probably would plummet by more than one-third this year to less than 5 million barrels a day, according to data company ShaleProfile Analytics.
That would drastically undercut US influence in world energy markets and deal a major blow to president Donald Trump’s ability to wield crude as a geopolitical weapon.
Such is America’s reliance on new drilling that 55 per cent of the country’s shale production is from wells drilled in the past 14 months, according to ShaleProfile.
“These are much bigger wells than your small onshore conventional wells. We’re in a whole other ball park here,” said Tom Loughrey, founder of shale-data company Friezo Loughrey Oil Well Partners.
“We have these relatively large and numerous shale wells, but they decline fast.”
To get an idea of how dramatically shale wells peter out, consider this: less than 20 per cent of this year’s expected drop in overall US crude output will come from shuttering existing wells, according to IHS Markit.
Rather, the vast majority of the supply drop will be the direct result of cancelled drilling projects.
“If you want to be a high flyer and a fast grower, you do that by adding lots of new wells,” said Raoul LeBlanc, an IHS analyst.
But when the drilling stops, slumping output produces “a hangover effect.”
Oil must merely trade above producers’ daily operating costs for them to avoid shutting in existing wells, according to Tai Liu, BloombergNEF analyst.
Most shale players we assessed can therefore avoid shut-ins if WTI clears $15 a barrel, though some need $20 or above.
The calculus for economic shut-ins does not include interest costs as those generally reflect previously incurred debt burdens.
Some explorers are taking more drastic action than others.
While Parsley Energy and Centennial Resource Development have said they’re halting all drilling and fracking, companies such as EOG Resources and Diamondback Energy plan to continue adding new wells, albeit at a severely reduced pace.
Much of the shuttered production probably will be turned back on by the end of this year, Federal Reserve Bank of Dallas president Robert Kaplan said during a Bloomberg Television interview.
Companies often don’t disclose their decline rates until asked, and even then, not everyone is happy about it.
Shale pioneer Mark Papa, who founded EOG and until recently led Centennial, once reprimanded an inquisitive analyst.
“Subash, we don’t disclose decline rates,” he said during a February 2019 conference call in response to a question from analyst Subash Chandra who was with Guggenheim Securities at the time.
“That’s kind of one of those things – kind of an entrapment question, so that’s just something that we really don’t want to talk about.”
Asked about his company’s decline rates earlier this month, Cimarex Energy chief executive Tom Jorden responded, “I hate it.”
Specs
Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request
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Veere di Wedding
Dir: Shashanka Ghosh
Starring: Kareena Kapoo-Khan, Sonam Kapoor, Swara Bhaskar and Shikha Talsania
Verdict: 4 Stars
Sri Lanka's T20I squad
Thisara Perera (captain), Dilshan Munaweera, Danushka Gunathilaka, Sadeera Samarawickrama, Ashan Priyanjan, Mahela Udawatte, Dasun Shanaka, Sachith Pathirana, Vikum Sanjaya, Lahiru Gamage, Seekkuge Prasanna, Vishwa Fernando, Isuru Udana, Jeffrey Vandersay and Chathuranga de Silva.
The biog
Favourite films: Casablanca and Lawrence of Arabia
Favourite books: Start with Why by Simon Sinek and Good to be Great by Jim Collins
Favourite dish: Grilled fish
Inspiration: Sheikh Zayed's visionary leadership taught me to embrace new challenges.
The specs: 2019 Haval H6
Price, base: Dh69,900
Engine: 2.0-litre turbocharged four-cylinder
Transmission: Seven-speed automatic
Power: 197hp @ 5,500rpm
Torque: 315Nm @ 2,000rpm
Fuel economy, combined: 7.0L / 100km
Race card:
6.30pm: Maiden; Dh165,000; 2,000m
7.05pm: Handicap; Dh165,000; 2,200m
7.40pm: Conditions; Dh240,000; 1,600m
8.15pm: Handicap; Dh190,000; 2,000m
8.50pm: The Garhoud Sprint Listed; Dh265,000; 1,200m
9.25pm: Handicap; Dh170,000; 1,600m
10pm: Handicap; Dh190,000; 1,400m
Itcan profile
Founders: Mansour Althani and Abdullah Althani
Based: Business Bay, with offices in Saudi Arabia, Egypt and India
Sector: Technology, digital marketing and e-commerce
Size: 70 employees
Revenue: On track to make Dh100 million in revenue this year since its 2015 launch
Funding: Self-funded to date
Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
How to book
Call DHA on 800342
Once you are registered, you will receive a confirmation text message
Present the SMS and your Emirates ID at the centre
DHA medical personnel will take a nasal swab
Check results within 48 hours on the DHA app under ‘Lab Results’ and then ‘Patient Services’
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RESULTS
5pm: Maiden (PA) Dh80,000 1,600m
Winner: Raghida, Szczepan Mazur (jockey), Ibrahim Al Hadhrami (trainer)
5.30pm: Maiden (PA) Dh80,000 1,600m
Winner: AF Alareeq, Connor Beasley, Ahmed Al Mehairbi
6pm: Arabian Triple Crown Round-2 Group 3 (PA) Dh300,000 2,200m
Winner: Basmah, Fabrice Veron, Eric Lemartinel
6.30pm: Liwa Oasis Group 2 (PA) Dh300,000 1,400m
Winner: AF Alwajel, Tadhg O’Shea, Ernst Oertel
7pm: Wathba Stallions Cup Handicap (PA) Dh70,000 1,600m
Winner: SS Jalmod, Richard Mullen, Satish Seemar
7.30pm: Handicap (TB) Dh100,000 1,600m
Winner: Trolius, Ryan Powell, Simon Crisford
UAE currency: the story behind the money in your pockets
Seven tips from Emirates NBD
1. Never respond to e-mails, calls or messages asking for account, card or internet banking details
2. Never store a card PIN (personal identification number) in your mobile or in your wallet
3. Ensure online shopping websites are secure and verified before providing card details
4. Change passwords periodically as a precautionary measure
5. Never share authentication data such as passwords, card PINs and OTPs (one-time passwords) with third parties
6. Track bank notifications regarding transaction discrepancies
7. Report lost or stolen debit and credit cards immediately
The biog
Hobby: Playing piano and drawing patterns
Best book: Awaken the Giant Within by Tony Robbins
Food of choice: Sushi
Favourite colour: Orange
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
The specs
Engine: 1.6-litre 4-cyl turbo
Power: 217hp at 5,750rpm
Torque: 300Nm at 1,900rpm
Transmission: eight-speed auto
Price: from Dh130,000
On sale: now
How to apply for a drone permit
- Individuals must register on UAE Drone app or website using their UAE Pass
- Add all their personal details, including name, nationality, passport number, Emiratis ID, email and phone number
- Upload the training certificate from a centre accredited by the GCAA
- Submit their request
What are the regulations?
- Fly it within visual line of sight
- Never over populated areas
- Ensure maximum flying height of 400 feet (122 metres) above ground level is not crossed
- Users must avoid flying over restricted areas listed on the UAE Drone app
- Only fly the drone during the day, and never at night
- Should have a live feed of the drone flight
- Drones must weigh 5 kg or less
Company Profile
Founder: Omar Onsi
Launched: 2018
Employees: 35
Financing stage: Seed round ($12 million)
Investors: B&Y, Phoenician Funds, M1 Group, Shorooq Partners
Ferrari 12Cilindri specs
Engine: naturally aspirated 6.5-liter V12
Power: 819hp
Torque: 678Nm at 7,250rpm
Price: From Dh1,700,000
Available: Now
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
Torque: 790Nm from 2,000-3,600rpm
Transmission: 10-speed auto
Fuel consumption: 11.7L/100km
On sale: Now
Price: From Dh590,000
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%3Cp%3E1.%20Go%20to%20%3Cstrong%3Echrome%3A%2F%2Fflags%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3E2.%20Find%20and%20enable%20%3Cstrong%3EExpansion%20pack%20for%20the%20Site%20Search%20starter%20pack%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3E3.%20Restart%20Chrome%20Canary%3C%2Fp%3E%0A%3Cp%3E4.%20Go%20to%20%3Cstrong%3Echrome%3A%2F%2Fsettings%2FsearchEngines%3C%2Fstrong%3E%20in%20the%20address%20bar%20and%20find%20the%20%3Cstrong%3EChat%20with%20Gemini%3C%2Fstrong%3E%20shortcut%20under%20%3Cstrong%3ESite%20Search%3C%2Fstrong%3E%3C%2Fp%3E%0A%3Cp%3E5.%20Open%20a%20new%20tab%20and%20type%20%40%20to%20see%20the%20Chat%20with%20Gemini%20shortcut%20along%20with%20other%20Omnibox%20shortcuts%20to%20search%20tabs%2C%20history%20and%20bookmarks%3C%2Fp%3E%0A
RESULT
Argentina 0 Croatia 3
Croatia: Rebic (53'), Modric (80'), Rakitic (90' 1)
