Commentary: The Journey of US Light Tight Oil Production Towards a Financially Sustainable Business

The developments in the US tight oil sector have been extraordinary. From an almost negligible level of production at the end of previous decade, the US oil supply has skyrocketed and the country is now challenging two established producers like Saudi Arabia and Russia as world’s leader in oil output. But this tumultuous growth has been accompanied by several questions about the financial sustainability of the sector and if shale operations would have been affected by a change in general financial conditions. The analysis in this article – elaborated in-depth in IEA’s World Energy Investment Report 2018 – aims to shed the light throughout the different cycles through which the industry has undergone and how/if the sector might evolve in the future.

The financing model underpinning the US shale oil industry is fundamentally different from that of large companies producing predominantly in conventional oil. Small and medium-size independent producers, which dominate the US shale industry, generally have much higher leverage with high levels of debt and hedging. Since its inception, the industry has been characterised by negative free cash flow as expectations of rising production and cost improvements led to continuous overspending in the sector. Over the last few months, the industry as a whole has seen a notable improvement in financial conditions, though the picture varies markedly by company, and the overall health of the industry remains fragile.

In order to try to assess as precisely as possible the developments of shale industry throughout the decade, we identified four distinct phases that have characterised the shale industry since 2010 up to now…


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