USA Shale Drilling Set for 20 Percent Drop at Current Prices

by Bloomberg David Wethe Wednesday, March 22, 2023


The U.S. shale patch may lose as much as 20 percent of its activity over the next year.

The US shale patch may lose as much as 20% of its activity over the next year if energy prices hold at current levels, according to one of the biggest private equity players in the industry.

Crude would need to rise by about 15% to $80 a barrel, and gas would have to climb by more than a third to $3 per million British thermal units for drilling and frack work to maintain its current pace, Quantum Energy Partners Chief Executive Officer Wil VanLoh said in an interview Tuesday. Oil and natural gas prices have slid since mid-2022 on fears of a global economic slowdown. 

“There’s a risk of a pretty big rollover this year at these current prices,” said VanLoh, whose Houston-based firm has managed more than $20 billion since its 1998 inception. While publicly traded explorers and closely held drillers both would drop rigs and frack crews, the private companies would cut back more because their balance sheets aren’t as strong, VanLoh said.

The number of rigs drilling for oil and gas has slipped 3% since the start of the year, according to Baker Hughes Co., as the biggest shale explorers stick to commitments to keep production growth flat and return profits to shareholders.

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Already seeing it happen.  Had a few wells lined up to frac but they were postponed due to NG pricing.  

Natural gas focused operators' commitments to keep production growth flat and return profits to shareholders is generally a good strategy for the benefit of mineral lessors. With Haynesville Shale wells so front end loaded as to their decline curve, the fewer new wells turned to sales the better.  After seeing royalty payments at $5 to $8 dollar gas, no one should want to see them go to $2 and  that seems to be where prices are headed with no expectation of significant increases until late 2024. 


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