(BY: RACHEL ADAMS-HEARD, BLOOMBERG) One of the largest oil drillers in America’s most prolific shale field is being forced to slow down, casting a dark cloud over an industry already struggling to win back investors.
Concho Resources Inc., which Evercore ISI calls the bellwether of shale, plunged on Thursday after scaling back production targets for the rest of this year. The 23 wells that make up Concho’s “Dominator” project in the Permian Basin were spaced too closely, and production will have to slow to avoid overshooting budgets.
The announcement came as rival explorers Apache Corp. and Whiting Petroleum Corp. also lowered growth expectations. Whiting slashed one third of its workforce and posted a surprise loss.
It’s the latest sign that companies in the vanguard of the U.S. shale boom face fundamental issues with their business model. With shale-well output falling off by as much as 70% in the first year, drillers need to pedal faster and faster just to maintain output. Concho’s woes bode ill for the rest of the sector, Evercore analyst Stephen Richardson said in a note to clients Thursday.
“There is little doubt this is a big event for the sector and a brake of this nature will create lasting impact,” Richardson wrote.