[Editor's note: A version of this story appears in the April 2019 edition of Oil and Gas Investor. Subscribe to the magazine here.]

One of the buzz topics at CERAWeek by IHS Markit in March was how U.S. shale oil has overtaken global supply dynamics and reset the traditional balance of crude flows worldwide. U.S. crude production grew by a whopping 1.8 million barrels per day (bbl/d) in 2018 year-over-year, just shy of 12 million bbl/d, a record. That fact propelled the U.S. into the pole position of global crude producers, topping Russia and Saudi Arabia.

However, off the main stage and in a room at the end of the hallway early one morning, one of the founders of the shale revolution harkened a warning: such a volume might not be sustainable for many more years. Shale production is destined to peak.

That prognosticator was Mark Papa, currently the chairman and CEO of Centennial Resource Development Corp., a Permian Basin-focused E&P, and the former CEO of EOG Resources Inc., inarguably the leading independent in shale oil development. Papa believes the industry is currently picking the low hanging shale fruit, and once that is gone, the effort becomes more challenging.

“I’m not particularly optimistic that over the next five years, the industry is going to be able to show year-over-year improvements in well recoveries that we’ve seen over the past 10 years,” he said. “In fact, I think we’re going to see evolutionary improvements, not revolutionary improvements.”

That theory is first premised on shale quality and remaining inventory. For obvious economic reasons, shale producers today—in any shale basin—are drilling the core of the core quality acreage. And despite the perception that a shale is a shale, “there are quality differences,” he emphasized. “It’s not completely homogenous geology. And the industry has attacked the better quality shales.”

And after a decade now of targeting the best-quality shale first, Papa asks, “What’s left now? Tier 2 and Tier 3 quality shales.”

Further, Papa believes the industry is reaching certain limitations in technology improvements. That is, lateral lengths for shale wells are “pretty much maxed out,” if only by lease-line limitations; proppant intensity is at its maximum from an economic standpoint; and fracturing fluids have been well refined. “So as I look at the levers that we can pull today, I’d say we’re in the seventh inning of a nine-inning game of what we can do to maximize the recovery factor.”

Additionally, Papa referenced the slew of shale operators who are up-spacing well locations from previously disclosed well counts per unit due to significant well interference occurring in pad developments—ultimately decreasing the number of wells that will be drilled.

Counterbalancing that argument, to a degree, was Greg Powers, vice president of innovation for Halliburton, the largest service provider in the world and inarguably the leader in oil and gas technology advances. “As a technology guy,” he said, “I never give up on the notion that there is a lot more out there.”

Even while we may now know all of the significant shale resources in the U.S., Powers emphasized that recovery only stands at 10% to 20%. “There’s been a lot of technology expenditure this decade trying to figure out what’s going on. What we ended up learning was experiential [i.e. trial and error], not fundamental. I think the fundamentals of what’s actually happening are yet to be [illuminated].”

Thus far, the industry better understands the mechanics of hydraulic fracturing, “but the chemistry of hydraulic fracturing is still a little bit mysterious.” Ultimate recovery will be a combination of both geophysics and geochemistry, he said.

“When you ask why we get 10% of liquids recovery, the answer is, we have no idea. The answer to what you have to do to make more oil come out has yet to be discovered. Ninety percent of the hydrocarbons are still waiting in a pore somewhere for their moment, and we don’t know what that exit ticket is.”

When pressed to make the baseball analogy as to what inning the shale cycle is in, Powers offered, “We might even be in the on-deck circle.”

That would portend a lot more U.S. production for many years to come. Even Papa noted that the majors largely sat out the first decade of the shale revolution, and are now coming in “in a big way,” particularly in the Permian.

“Once those big guys come in, you’re going to see those R&D departments have high priorities to what you can do to improve shale oil recoveries with technologies in the shale plays. You can expect to see significant improvements. Time will tell how that plays out.”

Yet Papa still believes the growth trajectory will flatten, even factoring in technology advances.

“I’m not proclaiming it’s the end of the shale revolution,” he said. “We will just have to expect that by 2025 the impact of shale oil for the U.S. will be less powerful than today.”

Steve Toon can be reached at stoon@hartenergy.com.