Save for later Print Download Share LinkedIn Twitter Shale oil well performance may have peaked in the US, with serious ramification for future supply growth rates. The sector is already pulling back on production growth in response to investor sentiment, rangebound oil prices and limited access to capital. Throw in wells that don't perform as well as envisioned and US shale faces another critical challenge as the sector matures, with implications for the future non-Opec supply outlook. Energy Intelligence's Research & Advisory (R&A) unit now forecasts US crude production growth this year at 700,000 barrels per day. R&A Director Abhi Rajendran says the estimate builds in an underwhelming well performance that will dictate volume growth throughout shale's maturity (PIW Nov.22'19). "Productivity gains are over," he states. Shale oil trailblazer Mark Papa, who shaped much of the technological advancements that made shale development a success as CEO of EOG Resources, signals no disagreement. Papa, now chief at Permian Basin minnow Centennial Resources, predicts a US growth rate of 400,000 b/d this year and annual growth between 100,000-500,000 b/d through 2025. Whether it is by virtue of belief or a strategy to lower expectations, other shale executives echo the line that production growth will wane faster and further than many anticipate. Nevertheless, US output surged to almost 13 million b/d recently, according to the US Energy Intelligence Administration (EIA), and consensus generally holds that shale is not finished remaking the global oil market (PIW Nov.15'19). The EIA now says the US will grow by more than 1 million b/d in 2020 to average 13.3 million b/d and average 13.7 million in 2021, maintaining its role as the biggest contributor of non-Opec supply growth. As it has matured, the shale oil sector has at times been stymied by operational problems and reservoir challenges, including issues related to well spacing and associated natural gas. Bellwether independent Pioneer Natural Resources was the first large E&P to openly discuss finding unexpected quantities of gas in the prolific Permian Basin. Evolution of its well-casing strategy addressed the gas-to-oil ratio problem for Pioneer, but the shocking abundance of associated gas -- much of it worthless -- continues to vex Permian players across the supply chain. Difficulty in pinpointing the optimal distance between wells has thrown production guidance off track for some of the most successful shale players (PIW Jan.3'20). Concho Resources' position as an industry darling came into real jeopardy six months ago when its Dominator project, a Permian endeavor to drill two dozen wells on a single pad, failed to meet expectations, causing its stock to crash (PIW Jan.10'20). CEO Tim Leach acknowledged that Dominator was an expensive science experiment that proved dramatically tightening the space between wells doesn't work throughout the Permian. To be sure, Western majors in the Permian have shown no sign of diverting from production growth plans (PIW Aug.9'19). But independents drove the technological revolution that made the boom possible. Can the industry innovate another round of improvements to secure its future as the world's most efficient short-cycle source of supply while adhering to investor demands for capital restraint? It is unclear, but what is certain is that shale faces a unique and formidable challenge in tackling extreme well decline rates. Some operators perhaps inflated production growth expectations by highlighting their biggest wells in investor presentations that were not indicative of the average type curves. The average base decline rate of existing wells in the Permian dropped to 34% in 2018 but was pegged at 40% by year-end 2019, analysts say. Indeed, the recovery rate of some Tier-1 acreage wells is less than 10%. But not everyone thinks high decline and low recovery rates are insurmountable (PIW Nov.22'19). The days of "brute force" in which producers simply punched bigger holes in the ground are over, replaced by experimentation. And while it's unlikely that one silver bullet will double the recovery rate of every shale well, a very motivated industry is working on a suite of solutions, says Scott Sanderson at Deloitte. "There's $24 billion dollars being left on the table because we don't quite know how to optimize our wells. If you can get a third of the way there, you made $8 billion dollars -- just a third of the way to optimizing what we have today without new innovation, without the new chemistries, without the new drilling techniques," he said. "I think they're going to figure it out."