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According to a new report by the Wall Street Journal, thousands of shale oil wells that have been drilled over the last five years are pumping less than what was forecast to investors. The new discovery has raised questions about the strength behind the United States' newfound supply of shale oil.

The WSJ compares well productivity estimates that were disclosed to investors versus public data of how these wells have performed to date; after analyzing 16,000 wells operated by 29 producers in places like North Dakota and the Permian basin, the Journal  found that about 66% of projections made by companies between 2014 and 2017 are reportedly "overly optimistic".

In total, these companies are set to pump about 10% less oil and gas than was forecast, an amount which equates to about 1 billion barrels of oil and gas over 30 years, which would be priced at about $30 billion at current market prices. In some regions, companies are reportedly off track by more than 50%. 

As previously discussed, the US shale boom has been one of the main reasons that the US has become an oil superpower over the last couple of years, while trimming the US reliance on foreign oil to virtually nothing.

But now shale drillers are under pressure to cut spending, as oil prices have cratered almost 50% in the last three months.

Two companies that operate in the Permian basin, Pioneer Natural Resources Co. and Parsley Energy are among the main culprits lagging behind forecasts (the analysis excluded several oil conglomerates like Exxon, because they didn’t make shale projections).

That said, Pioneer and Parsley disputed the report's findings, saying that the lifespan of wells was different from forecasts, while other companies like Whiting Petroleum Corp. simply stated that the forecasts can be unreliable and that they were going to move away from providing them. Certainly an easy thing to say now that investments have been made.

Another driller, Oasis Petroleum Inc., tried to hide behind accounting-style excuses, stating about projections: “It’s not a science, it’s more of an art.”

Prior to the shale boom in 2007, oil companies were valued close to their reserves. Now these companies, on average, are valued almost three times higher. 

It is no secret that shale companies have taken a significant amount of capital from Wall Street over the last 10 years - mostly in the form of junk bonds - and investors have mostly lost money. Since 2008, an index of United States based oil and gas companies was down 43% while the stock market has doubled in the same time. The article examined 29 companies which collectively spent $112 billion more in cash than they have generated from operations over the last decade.

Meanwhile, the estimates given to investors were sometimes extrapolated from only the best performing wells. Other companies excluded their worst performing wells from the calculations.  Texas A&M University professor John Lee, an expert on calculating oil and gas reserves stated: “There are a number of practices that are almost inevitably going to lead to overestimates.” 

When Lee gave a presentation in Houston this past July, highlighting methods that could produce more accurate forecasts, one engineer jokingly stated that their companies weren't using his methods "because [they] own [their company's] stock".