US crude production has already peaked, according to one of the country’s leading shale executives, as producers battered by the price crash shun new output growth and start trying to become profitable.
Matt Gallagher, chief executive of Parsley Energy, one of Texas’s biggest independent oil producers, said the record output level struck earlier this year would be the high-water mark.
“I don’t think I’ll see 13m [barrels a day] again in my lifetime,” the 37-year-old Mr Gallagher told the Financial Times.
“It is really dejecting, because drilling our first well in 2009 we saw the wave of energy independence at our fingertips for the US, and it was very rewarding . . . to be a part of it.”
American oil output plunged by as much as a quarter this spring, as crude prices crashed in the wake of a Saudi-Russia price war and the coronavirus outbreak, prompting several operators, including Parsley, to shut wells and slash planned spending.
Soaring shale production helped the US become a net exporter of petroleum in November last year — a stunning reversal for a country that imported more than 10m b/d a decade earlier. Since May, however, that has reversed and net imports have trended upwards.
US oil briefly traded below zero in April, but a recovery to around $40 a barrel since then still leaves it beneath the break-even price for many shale producers.
It was “hands down” the worst oil-price crash in recent history, Mr Gallagher said, and would have a lasting impact on the sector. “Our industry is the industry of mobility and comfort,” he said — referring to fuel for car and air travel and for heating and air conditioning — “and mobility is being drastically rethought and there will be new innovations on comfort.”
The Parsley chief has earned a reputation as a progressive voice within Texas’s oil industry. He took to LinkedIn with his thoughts on George Floyd’s killing, and recently bought a Ford electric car. In his interview with the FT he spoke of his admiration for the European oil supermajors that recently announced net-zero emissions goals.
He also called for an end to flaring in the shale patch. Parsley was among the top 20 natural gas flarers by volume in Texas, according to a report this year from the state’s oil and gas regulator. But Mr Gallagher said it had reduced the practice — a huge source of carbon emissions — to less than 1 per cent.
“From that perspective, some healthy regulation would, over time, probably benefit the industry’s reputation,” he added, potentially helping to lure environment-focused investors back to the sector.
“You want to be behind a company that makes this a priority,” he said.
Capital markets have largely closed to shale producers in the past year as investors fled a sector that became famous for world-beating production growth but an inability to repay debt.
The shale sector had “not been gifted with discipline”, Mr Gallagher acknowledged, and has often been led by management teams who “put up very little personal risk and had very lopsided upside reward based on growth”. But new capital restraint was now “trickling into the industry”.
Parsley is among companies that have restarted the wells they shut during the worst phase of the price crash. But the company has no plans to increase production with new drilling this year or next.
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Only 223 horizontal rigs — a proxy for US shale drilling activity — were operating on July 9, according to data provider Enverus, compared with 853 a year ago.
US oil production would eventually stabilise at around 11m b/d, Mr Gallagher said, as producers focused on maintaining output, not increasing it. That is in line with current production, according to consultancy Rystad Energy, but about 15 per cent below this year’s peak.
The oilfield services sector that carries out the bulk of the work for oil production companies would suffer most, Mr Gallagher said. Hundreds of thousands of jobs depended on activity in the shale patch, he said, “and those activity levels are just going to be dramatically lower for a long time”.