Moderation is the Key for Oil Producers in 2018

Tuesday, February 6th, 2018 and is filed under Oil and Gas Current Events

Many shale producers entered 2018 riding high, a trend that appears to have some staying power. One factor that could upend this trend is overproduction. An over-abundance of oil could force pricing down and possibly erase the gains seen in recent months.

US shale producers will have to figure out how to find their sweet spot, aligning production with demand signals while also managing shareholder expectations. Once they find it, they need to stay there, because going beyond that sweet spot could cause grief for the industry as a whole.

What Does Moderation Mean in the Gas and Oil Industry?

Prognosticators across the country agree production will continue to increase in the US. However, no one can seem to agree on just how much production will grow. The target remains largely a mystery, especially since shale producers aren’t playing by the old rules anymore. They are innovating, using new technology, taking different approaches, and even spending less to gain more.

This year will likely see less focus on production and more focus on positive cashflow, shareholder returns, and debt repayment. That, in turn, means producers will spend even less on aggressive expansion.

Instead, producers will, and should, start practicing moderation in their efforts. This will maintain their current rate of production at sustainable levels while they focus on creating more value with what they have.

Spending Less While Paying Out More

The phrase “capital discipline” will almost certainly enter into any discussion of moderation. Many people assume capital discipline involves a purposeful lack of growth, but that’s not always the case.

Growth for the sake of growth isn’t tenable at this point in time. Scaling back or practicing moderation will also help to slow down the equivalent of a production race happening across the globe. With the US producing more, pressure increases for other entities to start producing more as well to maintain market share.

2018 is the perfect time to slow down and figure out ways to continue to increase efficiencies. Producers need to start taking advantage of new techniques and new information from studies and reports over the last few years. In fact, many producers have already started to focus more on payouts and downsizing extraneous assets.

There’s Still Room for Growth

With all this being said, there is still room for growth. Places like the Permian Basin, the Eagle Ford Shale, and the Bakken are still hotbeds of activity and growth. As even more exploration areas open, many producers will flock to these locales to stake their claims.