Fitch: US shale oil output growth slowing
Despite relaxation of transport constraints in the Permian basin, a slowdown in oil-production growth in US shale plays will continue, says Fitch Solutions Macro Research.
https://www.ogj.com/general-interest/economics-markets/article/14037456/fitch-us-shale-oil-output-growth-slowingAug 1st, 2019
"Despite relaxation of transport constraints in the Permian basin, a slowdown in oil-production growth in US shale plays will continue, says Fitch Solutions Macro Research.
The firm cites oil-price stability, caution by exploration and production companies, and weakening allure of oil and gas in capital markets.
Fitch notes that the US Energy Information Administration expects Permian basin shale production to grow by 16.7% in August after increasing by 44.7% in August last year. And it says similar trends are evident in the Bakken and Eagle Ford plays."
“With the next major capacity additions not slated to come online until the end of third-quarter 2019, the summer months could see another squeeze on takeaway capacity and, consequently, production growth,” it says.
Due online this year are the 400,000-b/d EPIC, 670,000-b/d Cactus, and 900,000-b/d Gray Oak pipelines.
Fitch does not expect the capacity additions to return production growth to its 2018 high, partly because 2018 growth occurred against a low base.
The firm expects growth in total US shale liquids production of 9.4% this year and 6.9% in 2020, compared with 15.7% last year."
Volume vs. value
And companies have shifted emphasis from production growth to investment value since 2014.
Even so, the producing industry continues to rely heavily on external financing from sources becoming wary.
“This could further drag on growth as financial conditions deteriorate,” Fitch says.
A drop of more than 50% in debt and equity issuance by US exploration and production companies in first-half 2019 from first-half 2018 is part of a trend only partly explained by increased capital discipline and deleveraging.
“It likely also reflects less appetite to lend to the sector at previous, more favorable rates,” Fitch says. “Sentiment around the oil and gas sector is weak in general, with concerns over long-term sustainability blending into concerns over shorter-term price pressures.”
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