OPINION: The golden era of the US shale revolution has ended with Covid-19, lower oil demand and a sceptical president in Joe Biden.
Yet no-one should write off the Bakken, Permian and their sister basins as they return to life after the traumas of 2020.
We are seeing the rise, fall and now rise again of the sector, but it is coming back in more streamlined and cost-conscious form.
Drillers in the shale lands of Texas, New Mexico and Pennsylvania have been bringing more and more rigs back into operation over recent weeks.
Output down, but not out
Operators have been encouraged by the price of West Texas Intermediate (WTI) rising almost 40% year-on-year to around $60 per barrel.
Yet US oil production, at less than 10 million barrels per day, is still down by more than 3 million bpd compared to this time in 2020.
The total number of rigs across the country is almost half what it was at this time last year, but the direction of travel is forward and upwards — particularly in the shale regions.
The impetus has continued even as the oil and gas industry in Texas was knocked sideways by unexpected Arctic-level temperatures.
Chevron and ExxonMobil admitted last month that widespread power loss had forced them to shut in some Permian wells.
Shale moves to 'mature' phase
The collapse of oil prices last year caused enormous financial problems for many of the indebted shale drillers.
Consultancy Wood Mackenzie said shale had moved from “new and exciting” to a more “mature” phase in the eyes of investors, one focused around fewer but larger companies operating with lower head counts and reduced overheads.
Shale pioneer Chesapeake Energy has sung the same song, insisting the new era of shale requires a “different mindset".
Doug Lawler, chief executive of Chesapeake, said: “It requires more discipline and responsibility with regard to generating cash for our stakeholders and shareholders.”
The reassessment of the economics of shale has changed attitudes, particularly among the larger oil companies, some of which missed the initial boom and bought up stakes late and at a high cost.
Now they are bailing out. Norwegian state-controlled oil giant Equinor sold some of its Eagle Ford assets in 2019 and has just disposed of another $900 million worth of holdings in the Bakken of North Dakota and Montana.
Shell has just sold off around $700 million in shale assets to Crescent Point Energy — although this was in Canada, not the US.
A more sober shale sector — one concentrating on quality, not quantity — has brought wider optimism inside Opec about future price stability.
If shale is not going to undercut Opec+ output restraints, Opec believes it should be able to control supply and demand pressures more easily.
Then there is the wider political impact of a new US president who has little of his predecessor's enthusiasm for oil and gas.
Joe Biden is concentrated on a “green” revolution, which would see $2 trillion of public money deployed to turn the country away from fossil fuels.
Daniel Yergin, American oil sage and vice chairman of analysis giant IHS Markit, is confident that shale will not suffer unduly, even under a new White House administration aiming for decarbonisation.
“There are a lot of economic advantages from shale production and some foreign policy advantages. And Joe Biden is a foreign policy person,” Yergin said last month.
The old shale business model may be dead, but a new one is being born.
(This is an Upstream opinion article.)