Shale 2022: A New Era

As the calendar turns onto 2022, the shale industry finds itself in unfamiliar territory, but not totally unwelcomed territory. Both Henry Hub and WTI prices have surged and, perhaps more importantly, stabilized in the $3-plus and $80/bbl range, respectively. Global demand for energy is approaching global output, creating an environment for long-term supply/demand economics that should remain favorable for both producer and consumer.

But even beyond price and demand stabilization, the shale industry is enjoying something it hasn’t before, at least not to the extent that it is now: profitability. Discipline in spending, managed production growth and rising prices are leading to cash flow generation that investors have long demanded.

According to Bloomberg, free cash flow by U.S. oil producers will likely increase by 38% in 2022. Devon Energy reported free cash flow gains of $1.1 billion in third-quarter 2021, an 8x improvement over fourth-quarter 2020. During the third quarter, Pioneer Natural Resources reported free cash flow gains of $1.1 billion, EOG generated $1.4 billion and ConocoPhillips created $2.8 billion.