A pumpjack brings oil to the surface in the Monterey Shale, California, April 29, 2013. The vast Monterey shale formation is estimated by the U.S. Energy Information Administration to hold 15 billion barrels of technically recoverable oil, or four times that of the Bakken formation centered on North Dakota. Most of that oil is not economically retrievable except by hydraulic fracturing, or fracking, a production-boosting technique in which large amounts of water, sand and chemicals are injected into shale formations to force hydrocarbon fuels to the surface.Lucy Nicholson/Reuters
The rapid acceleration of North American shale-oil production may be starting to show signs of fatigue.
U.S. output, much of it from big U.S. plays such as the Bakken in North Dakota and Eagle Ford in Texas, is unlikely to keep surging at the recent pace of around one million barrels a day annually, said Maarten Bloemen, portfolio manager and research analyst at Franklin Templeton Investments.
Reserves could be in question, as well, after the U.S. Energy Information Administration this week cut its estimates for recoverable oil in the Monterey Shale formation in central California by 96 per cent.
"We're past the laboratory experiment in the shales, which seemed to be quite successful, but I don't think we're concluded with [determining] what reserves are, or what decline rates will be," Mr. Bloemen said in an interview.
From a risk perspective, he adds, the growth rate may have peaked. "There's a potential decline in the extremely rapid growth rate that we've had – so, going from a million [barrels a day] to maybe 900, to maybe 800."
What is likely to prevent a steeper drop, however, is the drilling and completion technology being developed that will allow drillers to tap reserves in different rock layers in the same areas, he said.
"As you drill, assuming prices continue, what they talk about as the core area – the most desirable area – starts getting larger," he said.
Other experts have warned that production cannot keep climbing at recent rates, which some agencies have projected will lead the U.S. to self-sufficiency in a few years. Scott Saxberg, chief executive of Bakken oil producer Crescent Point Energy Corp. warns there is not enough equipment and workers to sustain such gains in order to eliminate the need for foreign oil.
The U.S. EIA has forecast output in the United States to increase by one million barrels a day in 2014, a similar rise to the year earlier. For 2015, it forecast a 750,000 barrel a day increase to 9.3 million barrels a day, the highest in more than four decades.
In terms of energy stocks, the exploration and production sector is looking "fairly valued" following the runup that accompanied the gains in natural gas prices that were driven by the frigid winter, Mr. Bloemen said.
Franklin Templeton looks for unrecognized value in individual equities around the world, rather focusing on than industry themes, he said.
The European integrated companies, including Norway's Statoil ASA and France's Total SA, fit the bill, with their respective high dividend yields and overall discipline.
"We were [invested in these companies] early, and only recently have we seen the change in CEOs... we see shareholder focus, we see capex discipline, we see a focus on return on capital employed – something that has been missed for more than a decade," Mr. Bloemen said.
Jeffrey Jones