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Felicia Tan
in
Stocks
June 29 12:42

U.S. Shale oil foreshadowed a bleak future

 Despite the positive developments, experts have predicted a bleak future for the U.S. oil shale industry, which has faced a massive drop in oil production, writes Bloomberg.
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Amid oil prices rising to US$40 per barrel, major U.S. oil and natural gas producers (Continental Resources Inc., EOG Resources Inc., Parsley Energy Inc.) announced the resumption of production at closed wells.

Oil production will be about 16 percent below the maximum recorded at the beginning of the year. The previous high of 13 million barrels per day will not be reached until 2023.
The main obstacle, according to analysts, is the cash deficit from Wall Street banks after a decade of financial well-being. Long before the pandemic, investors insisted that companies cut spending and do not splash more than what they earn.
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Apart from the lack of financial resources, difficulties arise from the exhaustion of known reserves and the need to develop new fields. The United States now has 189 active drilling rigs (72 percent fewer than in March), one of the lowest since the start of the oil shale revolution.
American oil shale industry has been growing steadily for the past 15 years. During this period, production more than doubled, to eight million barrels per day. This is more than the U.S. could get from taking control of the Iraqi and Kuwaiti deposits during the invasion led by President Bush Jr. in 2003.
But that achievement was done despite huge costs. Over the past 11 years, oil shale operators have spent about US$340 billion using loans and funds received from Wall Street investors. As soon as oil prices started to fall in March, oil shale producers reduced excessive costs - from private jets to drilling rigs and employees. Production fell by 1.75 million barrels per day due to a drop in market demand triggered by the COVID-19 restrictions imposed by the pandemic.
The record reduction in the number of operating rigs in the U.S. threatens to result in the loss of up to one-third of shale oil production. Many companies will lose 30-50 percent per year. Meanwhile, the 15 largest oil shale companies in the country have cut their budgets for new oil shale development by an average of 48 percent.