US oil and gas producers entered 2020 under the cosh – out of favor with investors and wilting under heavy debt loads. The Russian and Saudi oil price war was swiftly followed by Covid-19 and the subsequent collapse in global crude demand. Prices plunged, with West Texas Intermediate trading in negative territory for the first time in April. Re-ignited tensions between Washington and Beijing have already halted a nascent price rebound and the USoil benchmark is trading below $32 a barrel
- barely half its levelin early January and well beneath the break-even price needed by many producers
For the shale oil companies, which pumped almost 13m barrels a day earlier this year and helped make the US the biggest crude oil producer in the world, the sector is now seizing up. The five charts below highlight a much-changed landscape. As operators idle rigs, sack workers, and shut-in wells, most in the business agree: the US’s worst oil downturn in decades is now underway.
he pace of drilling new wells has fallen by half in the past month, a rate not seen since the last downturn in 2015-16, during an earlier Saudi-led price war. However, part of that previous rig count drop was because of improved efficiency in shale production – fewer rigs were needed to supply the same output. This time around is different. The frac spread count, which measures how many crews are working at wellheads to prepare for hydraulically fracturing the shale, has crashed to record lows. In 2015-16, drilling activity plummeted but these frac completions continued, albeit at a reduced pace. Today, both rig count and completions have dried up. The resulting production drop will be much greater.
Producers were already starting to scale back their spending in 2020, trying to show restraint in the face of softening oil prices. Then came Opec’s price war in early March, just as the scale of the coronavirus hit to demand was becoming apparent. The WT! price collapse in March and April – from almost $50 a barrel to minus $40 – sent shockwaves through boardrooms. Capital expenditure plans were shredded by nearly half with some $29bn lanced off investment spending.
Some big producers took more than one swing at their budgets, lopping off new chunks of spending with each lurch lower in the oil price.