[Editor’s note: Opinions expressed by the author are their own.]

America’s shale sector grew famous in the past decade for two big achievements: spectacular production growth and a stunning ability to destroy shareholder value.

Its executives say those days are over. But breaking old habits will be hard.

Despite a price crash in 2015, American crude output over the period soared, transforming the country’s oil business and shaking global geopolitics from Riyadh to Caracas.

Wall Street came along for the ride. In just 10 years to 2018, shale producers gobbled up more than $400 billion of investors’ capital, according to consultancy Rystad, using the proceeds to drill and frack tens of thousands of wells from West Texas to eastern Montana.

Management teams have made bundles; shareholders, not so much. The S&P 500 has risen more than 60% in the past five years, but its energy index has lost more than 40%.

But this year’s crash has apparently done what the sector’s beaten-down investors could never manage before: persuade shale’s growth-crazed producers to slow down, cut costs, save capital, and actually consider paying back their lenders.

“The market has made it absolutely clear that it will not put up more capital to fund another spending binge,” said Andrew Gillick, an adviser to hedge funds and managing director at Enverus, a consultancy. “It’s all about capital discipline now.”

Shale executives used earnings calls after a punishing second quarter—which saw a global oil-price war, collapsing demand in the COVID economic shock, and crude’s first trade below zero—to promise better behavior.

Shale’s distinctive feature is its need for constant infusions of investor cash to stay alive.

Travis Stice, head of Diamondback Energy Inc., a big producer in Texas’s prolific Permian Basin shale, told analysts that supply growth was “pretty much off the table for now.”

Pioneer Natural Resources Co. pledged that it would reinvest just 70% to 80% of its cash flows to fund operations in future, saving the rest for shareholders.

Investors liked what they heard. The S&P’s energy index, one of the worst returning subsectors over recent years, outperformed the broader market by almost 4 percentage points in recent weeks.

But this also reflected the low expectations investors have for the sector these days. In other industries, promising not to burn shareholders’ cash or go bankrupt is not typically enough to spark a rally.

Pioneer’s pledge was especially significant given shale’s short history. In a speech that went viral five years ago, David Einhorn, who runs hedge fund Greenlight Capital, tore into the ruinous shale business model, singling out Pioneer as the “motherfracker” that epitomised the industry’s inability to turn a profit.

It was a bit unfair on Pioneer—then, as now, considered one of the patch’s best-managed companies. But the depiction of the sector at large hit home.

Shale’s distinctive feature is its need for constant infusions of investor cash to stay alive. Production from a typical shale well spurts relatively prolifically in the initial stages, then plunges lower, then trickles for years. So keeping annual output level—let alone achieving the spectacular growth rates of recent years—means thousands of wells must be drilled and hydraulically fractured, or fracked, each year.

Worse still, the hamster-wheel nature of the model means that unless producers can keep a certain level of activity ticking over, output will tail off quickly—and so will cash flow. Producers can slash spending to preserve capital, even generating free cash flow for a time. But less capex now will mean less oil soon.

As Einhorn said in 2015, the sector was “addicted to frack.”

Occidental Petroleum Corp., for example, has made huge spending cuts this year—part of an effort to repair a balance sheet still groaning under debt taken on during last year’s Anadarko acquisition. But it means oil production will fall sharply in the next two quarters.

This is also why analysts are sceptical about the latest pledges from shale producers to mend their ways. Many promised the same after the crash in 2015-16, when spending also plunged. But, as oil prices rose, their need to generate cash flow to feed the next cycle of drilling trumped all promises of restraint. Production soared but profits did not.

“We’ve been through this so many times,” said Chris Duncan, an analyst at Brandes Investment Partners, in San Diego. “I don’t think anything has changed.”

U.S. drilling activity fell slightly to another record low this week, but at $40/bbl some shale producers have already decided the worst is over.

One private-equity backed producer in the Permian Basin told the Financial Times that his company had resumed drilling at the same pace as before the crash. His publicly traded rivals nearby—run by some of those executives who were most vocal lately in disavowing new growth—could do the same, he said, “but aren’t allowed to because the investor community is just so skeptical.”

It is likely to remain so, until the shale patch shows it can produce shareholder returns with the same gusto as oil.

Onshore