U.S. Shale Sector is Alive and Kicking
Those who were writing the obituary of the US shale sector after the health crisis in 2020 have been proven wrong as exhibited on the chart above. It shows the annual combined value of asset acquisitions and corporate mergers. Last year exploration and production companies spent over $230 billion on mergers and acquisitions, the highest since 2012. The most significant ones include ExxonMobil’s acquisition of Pioneer Resources for $64.5 billion, Diamondback’s $26 billion move for Endeavor Energy and Chevron’s merger with Hess valued around $53 billion pending regulatory approval.
The latest wave of consolidation is a discernible sign that the shale industry in the US remains an attractive proposition for investors. Sure enough, its modus operandi has undergone seismic changes as the age of literally limitless funding has been turned into a “leaner and meaner” strategy. Shareholders are now demanding return on their investments. This, however, does not act as a brake on US shale output, quite the opposite.
The most illustrious example of the new landscape in the US shale sector is found in the prolific Permian Basin. Although only five companies control over half of the resources in the region output is continuously climbing. In the year of the pandemic production stood at 4.46 mbpd, in the first half of the current year it has averaged 6.1 mbpd. This healthy growth rate is mirrored in total US crude oil output figures. It dipped from 12.3 mbpd in 2019 to 11.3 mbpd in 2020 after which it started to recover and has never looked back Average daily output stood at 12.9 mbpd last year is set to grow to 13.2 mbpd this year and expand by another 470,000 bpd in 2025.
The unbroken faith of investors in the US shale sector suggests that demand for oil is expected to remain healthy in the foreseeable whil acknowledging that the transition from fossil fuel to renewable energy is irrevocably under way. Secondly, it also implies that the US, the heartbeat of non-OPEC+ production growth, will remain a fierce competitor of the producer alliance. US producers have not and will not shy away from filling the gap left by OPEC+ output restraints on the supply side of the oil equation, effectively capping any attempt to push oil prices anywhere near the $100/bbl mark.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
