US Shale Confronts Growth Limits

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US shale has consistently surprised the oil industry, but as it matures a host of factors are preventing its expansion. Wall Street used to happily finance a sector that struggled to produce free cash flow, but those days are over after a decade of poor returns. US independents must now live within their means. With the focus on shareholder returns through dividends and stock buybacks, future cash flow will be directed away from increased drilling and output. The rise of the oil majors in US shale has brought some predictability to oil markets and Opec, with claims their assets have break-even costs of $50 per barrel and that near-term prices will not impact their expansion plans. However, the previous supply of short-cycle shale will prove less responsive to oil price increases in the future while US output looks increasingly more vulnerable to any price falls than in the past. Noah Brenner, Houston

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