WSJ: U.S. Shale Boom Shows Signs of Peaking

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HOUSTON—The boom in oil production that over the last decade made the U.S. the world’s largest producer is waning, suggesting the era of shale growth is nearing its peak.

Frackers are hitting fewer big gushers in the Permian Basin, America’s busiest oil patch, the latest sign they have drained their catalog of good wells. Shale companies’ biggest and best wells are producing less oil, according to data reviewed by The Wall Street Journal.

The Journal reported last year companies would exhaust their best U.S. inventory in a handful of years if they resumed the breakneck drilling pace of prepandemic times.

Now, recent results out of the Permian, spread across West Texas and New Mexico, are mimicking the onset of a production plateau that has taken place at other, more mature U.S. shale plays.

At a major industry conference here this week, executives cited the stagnation in shale, saying it signaled a return to more dependence on foreign energy sources and more challenging times ahead for major U.S. companies, after most of them posted record earnings last year.

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Oil production in the U.S. rose from about 7.2 million barrels a day a decade ago to a high of about 13 million barrels a day before the pandemic. But domestic output last year grew at one-third of the annual average pace seen in shale’s heyday from 2017 to 2019, and hasn’t yet caught up with prepandemic levels.

The slowdown was mostly because of investor pressure on companies to curtail spending and limit growth in favor of generating higher returns. At the same time, weaker well results in the Delaware basin contributed to flattening output.

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Companies such as Chevron Corp., Devon Energy Corp. and others that have held the Permian up as a central pillar of their future plans saw top wells yield less crude last year than the previous year.

Chevron, one of the largest landholders in the Permian, drilled some of the region’s most prolific wells in Culberson County, Texas, but some of its newer wells there have seen productivity decline.

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Chevron executives said last week the company missed its oil-production target in the Delaware, citing higher-than-expected depletion rates. The company plans to revise its approach in the Permian, they said, shifting some drilling into New Mexico, and targeting areas that are likely more productive—moves that will reduce its pace of activity somewhat.

Chevron Chief Executive Mike Wirth said last week the rate of production growth and drilling activity the U.S. shale industry saw a decade ago “is unlikely to be repeated,” though the Permian still has areas that haven’t been developed.

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Investment bank Raymond James Financial Inc. estimated in a September report that public producers and private operators in the Delaware hold about 7.2 years of sweet spots, and less than eight years in the Midland basin, the other major portion of the Permian.

Shale’s sluggishness means global oil markets will have to rely on Middle Eastern crude over the next decades, said Scott Sheffield, CEO of Pioneer Natural Resources Co.

“We’re just not gonna have that big growth pump like we used to,” he said of U.S. crude production.

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