Just how fast is the U.S. shale industry falling apart? It may be faster than you realize.
In the last few months alone, the amount of oil being produced in the U.S. has fallen like a rock. With few new wells being drilled (compared to during the shale boom), the trend will likely continue well into 2016. And that trend could change the energy industry dramatically over the next few years.
Oil production is plunging
The U.S. Energy Information Administration reports U.S. field production of crude oil every week, and the reports haven't been pretty the last few months. The most recent reading of 9.16 million barrels per day is half a million barrels per day less than the peak of 9.61 million barrels per day during the week of June 5.
It's interesting to note that this trend hasn't yet hit some of the biggest players in U.S. shale drilling.
This could be devastating to shale drillers
We've already seen an impact in the shale market. Sandridge Energy, Halcon Resources, and Swift Energy are just a few of the former highfliers that seemed destined for bankruptcy court, joining a growing list of shale drillers. Companies that had too much debt or costs too high to make money on $45 oil have been doomed in the low oil price market.
Now it may be time for bigger players like Continental Resources (NYSE:CLR) and Whiting Petroleum (NYSE:WLL) to face a similar, albeit less dramatic, reality as production falls. You can see that both stocks have held up decently well compared to competitors, but neither company is swimming in profits.
While neither Continental Resources nor Whiting Petroleum is seeing the drop in production that the market as a whole is, they're heading in that direction. Whiting Petroleum's production in the third quarter was down 0.6% on a comparable basis from the second quarter, and it will spend $2.15 billion on capital expenditures in 2015 just to maintain that production.
Continental Resources also reported a small 1% increase in production sequentially in the third quarter. This is a far cry from the 25% increase the company saw year over year. As a leading shale company, Continental isn't going to cut back as quickly as smaller rivals, but the $82.4 million loss it reported from a $533.5 million gain a year ago shows how far fortunes have fallen.
The fact that production growth has stalled and is starting to decline is a dramatic shift from the last decade in energy.
Not out of the woods yet
Cutting back on growth and even oil production overall bodes well for the future of oil markets and the companies who can survive. But it could still be a long road ahead before there's a significant recovery.
Oil markets are oversupplied by 1-2 million barrels per day and Saudi Arabia continues to increase production slightly to offset drops in U.S. production. Then we have 1 million barrels or so of additional oil that could come online as Iranian sanctions are lifted.
Cuts to capital spending and an overall decline in U.S. oil production should eventually bring the market back to equilibrium and lead to higher oil prices. But it'll take a long time to sort out the market and in the meantime companies burning through cash will eventually go bankrupt.
As even the strongest players in U.S. shale drilling start to see declines in production and losses mount, the problem becomes even more apparent. The U.S. shale oil industry is collapsing fast. It may only be a matter of time before it's remembered as another boom-and-bust cycle in energy.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.