Commodity Watch: Is Fracking Cracking?

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" data-fr-image-pasted="true" src="/getContentAsset/e4db1c4c-2687-44cd-adbd-db1eb849e5d2/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.jpg?language=en" alt="Ahmad Al Sati" title="Ahmad Al Sati" class="fr-fic fr-dii" style="width: 180px"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and portfolio manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>The first commercial fracking job in 1947 used a 75-horsepower (hp) pump and produced 3.5 bbls/minute (barrels per minute). Today, a typical job uses 5000hp+ (I’ve felt the power of those pumps) and produces up to 75bbls/minute.</p><p>The “Shale Revolution” used improved technology (3D seismic, horizontal drilling, and ‘slick-water’ fracking) and processes (just-in-time fracking) alongside financial discipline to catapult the US into the top spot. The numbers speak for themselves. Between 1970 and 2007, US oil production dropped by 50% (10 million barrels to 4.9 million barrels). Since ‘07, production has increased to ~13 million barrels.</p><p>The increased production may help to shield the US against market volatility and effectively creates a large swing producer that can help ameliorate global oil price spikes. Per the Dallas Fed, oil prices would have been 36% higher in 2018 and 80% higher in the long run without US shale production. Yet under the surface, cracks (no pun intended) may serve to mute the effectiveness of shale producers in mitigating against price increases.</p><p>In the short run, the Frackers’ existing business model could hamper the US’ ability to act as a shock absorber. Just-in-time fracking means that rig counts and completed wells are tightly managed. In April, the rig count in the Permian Basin dropped to its lowest level since 2021. Granted, part of that was due to increased efficiencies requiring less rigs overall, but part of it was a reaction to lower oil prices. Other metrics also indicate lower activity. For one, the number of permit applications in Texas are at their lowest since 2021 dropping by 20% MoM in April. Across shale producing basins, the drilled but uncompleted wells (DUCs) are at their lowest level since 2013 (30% of pre-COVID levels). DUCs can be brought online within 2 months, while new wells require 9-12 months lead time. The improved efficiencies are good for the ecosystem but mean that producers may not be able to react quickly to supply shocks allowing price increases to ripple through the economy.</p><p>Over the long-run as producers exhaust tier-1 acreage, production may plateau. Despite increased efficiency and better technology, ultimate well recovery decreased 40% between 2021 and 2023 and production has been flat in the Bakken and the Eagle Ford. In addition, wells today produce more water per barrel of oil and are more gaseous (i.e., less oil). When geology stops cooperating, more rigs don’t help. In the 70s Nixon pushed for more drilling, increasing rig count by 5x. Oil production went down by 15%, even as prices skyrocketed.</p><p>We may not have reached peak US shale oil yet. The ingenuity of US oil producers is unmatched. Yet risks and complexity abound and a sustained decline or a period of stunted growth will impact global prices to the upside. Others (Argentina, Brazil and Guyana) may step in and fill any shortfall, but US shale production will surely be missed the world over.</p><p><em>The above is an extract from a LinkedIn post by Ahmad Al-Sati from 22/06/2025.</em></p>