Swing Oil Production and the Role of Credit

The article begins with the classic definition of a swing producer and notes that North American tight oil (shale) producers would not normally fit this strict definition. The paper then argues that advances in well-production estimation techniques naturally led to an explosion of creative financing solutions for investing in shale. As a result, the appetite of credit markets for taking on shale-production risk became a key driver for the outlook for North American oil production. Next the article proposes that we might be able to refer to shale producers as swing producers as long as we loosen the definition of swing producer to be one in which there are fairly uniform production decisions that take place over up to a 12-month timeframe. The paper then notes that at some point, geological constraints (much more than the credit cycle) could come back into play and the baton would thereby pass back to the Middle East Gulf oil producers as the undisputed swing producers. Lastly, the paper returns to a shorter-term perspective, describing how the capital markets will likely be much more cautious in investing in shale oil production, even with a continuation in the recovery of the price of oil.