To discuss the prospects of shale oil and difficult, and just at the same time. Difficult — as the end result works a lot of conflicting factors. Just because in this circumstance the only conclusion is reduced to the formula “it is clear that nothing is clear”.
And it’s not just a beautiful phrase. That reliably predict the situation with shale production in the US is difficult, misleading and reputable consulting company, which tightly immersed in the entire geological the kitchen of shale production, are closely examining accounts or financial plans of the companies. In short, conduct the work that the external observer is simply unable to undertake alone and without the full engagement in the issue.Against this background, the external observer nevertheless is able to highlight all the main factors, on which depend the prospects of shale (and with it the total) of oil production in the United States.Traditionally, the main indicator to monitor is the activity of drilling. Although recent data (they are published weekly) showed an increase in the number of drilling rigs operating on two units, the medium-term trend negative. This year, the number of working rigs decreased by 20%: now in the U.S. oil drilling works 712 compared to 885 at the end of last year, when their number was at a local maximum. Recall that because productivity of shale wells is falling rapidly, drilling a new need to conduct regularly.At the same time it should be noted that the reduction in the number of working drilling rigs (if not a multiple) will not necessarily lead to a drop in production, plus there is and inertia. In addition, there remains the factor of drilled but not completed wells (that is, those which had not yet been hydraulic fracturing, after which you can start mining). These wells relatively quickly can be running at a favorable price environment or, for example, in the case when the new pipeline in the area. Production from these wells does not correlate with the work of drilling rigs.The projections are important and the dynamics of the volume of cumulative production new wells (i.e., how many wells you can get the oil for all time of its work). Roughly speaking, better or worse than the previous one are new well? This figure may rise and fall, and the data in different sources sometimes differ. In turn, the cumulative production of the well can depend on two factors: first, the quality of sites for drilling (skeptics say that they become worse, optimists — quality plots still abound); second, the characteristics of the drilling operations. The successes and experience gained in drilling allow for more fine-tuning, which positively affects the productivity of the well. In addition, an important role is played by the length of the well and made a number of fractures, however, these parameters in the analysis of productivity data is typically normalized.As can be seen from the foregoing, the abundance of factors involves a high degree of uncertainty, and in some cases, and manipulation in analyzing the prospects for shale extraction.But now the main aspect of the debate — how it will be distributed cash flow received by the companies from operating activities. Skeptics note that it is necessary to extinguish debts (enough money for it), and it would be nice to start returning money to shareholders through dividend payments. In this case, the free money will not remain, and so to drill new wells will not be on that. All this will lead to the lack of meaningful production growth.This factor could indeed be critical for the prospects of “shale”, if not for one thing. We must remember that in the slate industry come in two oil and gas company is ExxonMobil and Chevron.The company is a multinational, but with an American origin and residence. We have previously discussed the plans of these monsters to increase its shale oil production in the United States. Plans total the increase in “slate” for the two companies in the amount of not less than one and a half million barrels per day until 2023.In this context it is now interesting to pay attention to the sales by these companies of their assets worldwide. ExxonMobil announced the program to reduce assets by 15 billion dollars.Only a few recent examples:— a company sells its assets in Malaysia, which can bring up to three billion;— have agreed on the implementation of the production assets in Norway 4.5 billion;— in the list on sales of other (but not all!) Asian assets (Thailand, Vietnam, Indonesia, Australia).— ExxonMobil is also seeking a buyer for a stake in oilfields in Azerbaijan. And, by the way, exactly the same does Chevron, expecting to gain for their share of the Deposit two billion dollars.It is impossible to claim that absolutely all the money will go to the “slates”. Although both companies plan to increasingly focus on “home” production, we should not forget that, in addition to shale, there is deepwater production in the Gulf of Mexico. Part of the funds will be spent and for other purposes. But shale production will also receive support.In addition, the cost of credit to TNK about two times lower than for shale companies that also facilitate funding.It is important to understand that a relatively small pure shale companies over the years have accumulated a lot of experience. Including because I was experimenting, not drilling the most optimal wells, but gained an experience. The one case when this experience was really the son of errors. And it by and large, and cost the company the most money that they owe to investors.If you reset the old debt problems, but to preserve the legacy, the economy of “slates” will look more attractive. Perhaps bankruptcy will not, but the experience of the national shale companies, transnational corporations in one way or another will get. And by the way: as recently reported, Chevron has already established several joint ventures and partnerships with mining shale oil companies.If we talk about the total picture around the market, a consulting company Rystad Energy predicts a relatively small reduction in investment in “oil shale” in the present and in 2020 (compared to 2018) and the subsequent slight growth.At the beginning of 2019, we discussed that the growth forecasts for U.S. production by about a million barrels per day for the current year look reasonable.The year is not over yet, but at the present time the total production in the United States is estimated at 12.6 million barrels from 11.7 million barrels at the beginning of the year. That is, until it looks like the increase of production in million barrels per day for the year will be implemented.What’s next? It is clear that the situation they themselves pure shale companies, to put it mildly, not outstanding. But the way this market is an American multinational oil corporations will support production volumes. If you give a cautious forecast, the moderate growth — say, up to 0.5 million barrels per day (year) in the next years — shale extraction at current oil prices we will see. The numbers may vary, but to talk about the real decline of shale production and the decline of the “slate” in the first half of the 2020s prematurely.Alexander Sobko