Does Oil Have a Shale Problem?

The oil industry has been hit by yet another hurdle, with new concerns about shale seeing second-quarter earnings for Permian Basin oil-and-gas driller Concho Resources drop by 25%. The results sent Concho shares plummeting, despite a year-over-year increase of oil and natural gas supply of more than 40%. The company didn't attempt to sugar coat the figures, admitting that it's struggling to stay on budget and meet production targets.

Concho isn't the only company feeling the sting, with shares in Whiting Petroleum also dropping by more than 30% after reporting an unexpected quarterly loss. The negative results also dragged down shares of other Permian Basin drillers, including Parsley Energy and Pioneer Natural Resources. A broad review US oil and gas company stocks reflects the negative trend, with shares

tumbling to the lowest values seen since the index was created during the 2006 shale boom.

The soaring costs of shale drilling

The rising costs of hydraulic fracturing have been pegged as the main driver, with the use of high pressure water and sand pumps seeing industry operational costs and expenses increase by more than 50% in the second quarter. Extracting oil from fine-grained sedimentary rock is especially problematic as there is a constant need to reinvest in equipment and resources. In comparison, conventional drilling methods like deep-water and land wells require high upfront costs but don't call for ongoing capital.

New statistics from Wood Mackenzie illustrate the trend, with a group of seven unconventional oil-focused drillers reporting a collective US$1.58 billion free cash flow loss in the first quarter of 2019. This represents a twofold increase on free-cash-flow burn figures reported in the fourth quarter of 2018. In response, shareholders are becoming more concerned about the costs of shale drilling and are putting companies under pressure to slash spending and focus on increasing returns.

Oil and gas majors stand by fracking

While shale drilling has attracted criticism from investors, major integrated oil companies such as Exxon Mobil and Chevron aren't shying away from the industry. Instead, they've increased spending and plan to invest in shale projects. Whether the investment risk pays off is a burning question.

As shale producers rally to rein in spending and increase profits, chemical analysis technologies will have an exciting role to play. 'Trailblazing conference continues to transform the analytical world' spotlights the Gulf Coast Conference (GCC), which brings together laboratory technicians, chemists, engineers, plant managers, young and senior individuals from around the world.