Jun 25, 2020 - Energy & Environment

Shale's long and uncertain road back

Reproduced from Federal Reserve Bank of Dallas; Chart: Axios Visuals
Reproduced from Federal Reserve Bank of Dallas; Chart: Axios Visuals

A new Dallas Fed survey of energy executives and the upswing in COVID-19 cases together signal the near- and long-term problems facing domestic oil producers.

Why it matters: It's another window onto something we wrote about earlier this week: The once-booming shale patch may never achieve its former output, and if it does, it'll be reshaped as some financially weaker players face insolvency and potential acquisition.

Driving the news: The Dallas Fed's quarterly look at the oil-and-gas sector in its region has a revealing look at how the industry sees the future.

  • Many industry executives surveyed don't see drilling operations returning to former levels for at least a year.
  • 39% of the executives say it will be at least 2022, while another 16% say it won't ever happen.
  • Output from shale wells declines very fast, so the absence of lots of new drilling shows why regaining the previous nationwide production peak of almost 13 million barrels per day is such a heavy lift.

Yes, but: The survey of executives from oil-and-gas producers also has some promising signs for the industry. It notes that most producers expect to revive output from idled existing wells in the next few months (with substantial amounts brought back this month).

What they're saying: A Bloomberg feature yesterday explores how analysts see the sector's future.

Their survey of projections by the International Energy Agency and four consulting and data firms shows that on average, they see production 18 months down 16% from its pre-COVID peak.

But that average mixes bullish and bearish outlooks — two of the firms project that output in early December of 2022 will be under 10 million barrels per day.

Where it stands: The crude oil price recovery has gone into reverse over the last week amid sobering news on the spread of COVID-19.

Prices this morning for the U.S. benchmark WTI are $37.24, a retreat from the $40-per-barrel range earlier in the month that has marked the first return to $40 since early March.

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