Record cashflow for shale oil risks another ordeal for Nigeria, OPEC

Higher oil prices of $75 and capital expenditure discipline are setting the stage for the highest free cash flow on record for some of the world’s biggest explorers, especially shale oil in the United States (US), a development that may reopen 2014 scars for Nigeria and some of the biggest oil producers in the world.

The US shale producers are expected to generate a combined $30 billion in free cash flow in 2021 amid disciplined capital spending and higher oil prices, Bloomberg Intelligence estimates said in a new report.

This development is different from the past boom and bust cycles where the U.S. shale patch loaded up on debt to drill and produce as much oil as possible, contributing to sinking oil prices.

Another report by independent research firm Rystad Energy is expecting shale oil to be the biggest beneficiary of capex discipline and high oil prices, as well as the largest contributor to the highest-ever free cash flows from the upstream business globally.

Forecasts from Rystad Energy expect the world’s public oil firms to see their combined free cash flow—all cash flows from upstream activity excluding such from financing or hedging effects—surge to a record-breaking $348 billion in 2021.

“The key driver of record cash flows would be the U.S. shale patch, which is estimated to rake in nearly $60 billion in free cash flow before hedging effects,” Rystad Energy said.

For most analysts, this would be a turnaround in the financial fortunes of US shale drillers, which have struggled to generate positive free cash flow for a decade since the shale revolution began.

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“$70 oil can certainly help a lot, but it is also capital discipline at every single oil company from supermajors to U.S. independents—that is contributing to record cash flows this year,” Louise Dickson, Rystad Energy’s Oil Markets Analyst said in a note.

The news of US shale super-profits will be scary for Nigeria and most Organisation of Petroleum Exporting Countries (OPEC) who went into recession after Shale caused a supply glut that sent oil price crashing to a historic low in mid-2014, while also making the US the largest producer of the commodity.

Most analysts say the once-brash U.S. shale industry, which spent profusely in recent years to grab market share, is now focused on preserving cash, which may put it at a disadvantage to low-cost OPEC producers as the global economy begins to gear up again.

Growth in the non-conventional oil supply from Shale has caused problems for OPEC in the recent past.

The shale boom has upended the global market, turning the United States from a keen buyer of Nigerian oil to an aggressive competitor.