Financial constraints force shale operators into survival mode

GlobalData Energy 26 November 2020 (Last Updated November 26th, 2020 15:52)

GlobalData’s latest thematic report, ‘Shale’ provides an overview of the global shale industry against the backdrop of the economic downturn from COVID-19 pandemic.

Financial constraints force shale operators into survival mode
Credit: Shutterstock.com.

GlobalData’s latest thematic report, ‘Shale’ provides an overview of the global shale industry against the backdrop of the economic downturn from COVID-19 pandemic.

The global shale production has taken a drastic hit in 2020 – shale oil output is expected to drop by 11.7% year-on-year, while shale gas output may see a 4.5% fall. The US leads the global shale production by an overwhelming margin. Apart from the US, shale oil and gas production is carried out in Canada, China, and Argentina.

Shale industry, especially in North America, has faced major brunt of the economic downturn. This has led oil and gas companies involved in the shale value chain to undertake extensive spending cuts for 2020. In Permian Basin alone, major shale drillers reduced their planned capital expenditure for this year by over US$18 billion. Two prominent Permian Basin operators, EOG Resources and Pioneer Natural Resources, slashed their capital spending for this year by 62% and 40%, respectively. Apart from these, integrated oil and gas companies, such as ExxonMobil, Chevron, and Shell also announced capex cuts in the US shale plays.

Independent shale operators in the US are among the worst hit from this downturn as operations in some wells of the Bakken or Eagle Ford shale are no longer sustainable. Operators have resorted to taking wells offline to manage costs. Debt-ridden operators are even facing difficulty in drawing liquidity from financial institutions to sustain operations. As a result, drillers like Chesapeake Energy and Whiting Petroleum have filed for bankruptcy in 2020.

Oil prices have stabilized of late around the US$40 mark. The US government has provided financial assistance to oil and gas companies to the tune of around US$100 billion, through issuance of bonds. It has also relaxed stringent environmental laws to aid this recovery. In this environment, shale market consolidation seem to be the likely path towards recovery.

Some of the leading oil and gas players in the shale theme are ExxonMobil, EQT Corp, Chevron, Antero Resources, EOG Resources, Ovintiv, Chesapeake Energy, BP, Royal Dutch Shell, Cabot Oil & Gas, Occidental Petroleum, and ConocoPhillips.