Drillers in the Eagle Ford, Texas’s other shale oil patch, will likely scale back activity in 2019 as lower crude prices eat into cash flows.
Production has already started slowing. Supplies this month are expected to average below 1.3 MMbod for the first time since May, according to consulting firm Rystad Energy AS. If West Texas Intermediate crude prices stay under $50/bbl, output could fall as low as 1.2 MMbbl by year-end, said Artem Abramov, Rystad’s V.P. of shale analysis. That’s 12% below the two-year high reached in October.
“Most of the producers we have talked to plan to reduce activity this year,” he said by phone.WTI crude futures plummeted 38% last quarter, marking the biggest quarterly decline since 2014. At less than $50/bbl, producers in the western reaches of the Eagle Ford can’t make a profit and may find it difficult to balance cash flows with operating costs, Abramov said. Sanchez Energy Corp. and Chesapeake Energy Corp. are especially likely to scale back given their positions in the western part of the play, he said.
Neither company responded immediately to a request for comment.
Drillers in the Eagle Ford’s central basin will fare better, with break-evens ranging from the mid-$20s to the low $30s, according to Abramov. And don’t worry about shut-in wells — producers have an incentive to wait for prices to recover before closing the tap. “If they decide to shut their wells, it would be difficult for the producer to return to pre-shutdown levels,” he said.