The promise of the Permian is shrinking.

(Bloomberg) -- The promise of the Permian is shrinking.

Producers in the nation’s oil-rich shale basins are dialing back growth plans in the face of a growing panoply of problems that’s killing returns, and keeping skeptical investors away.

The constraints are manifold: pipeline limits, reduced flow from wells drilled too close together, low natural gas prices and high land costs. But the most consequential is that shale-well oil rig flanges gulf coast production falls off at such a high rate -- as much as 70% in the first year -- that you need to keep spending cash on new wells just to maintain output.

In the five years since oil fell below $30 a barrel from more than $100, a resilient shale industry has established the U.S. as the world’s top oil producer. Now, cracks are opening in that survival tale, with companies ranging from EOG Resources Inc. to tiny Laredo Petroleum Inc. dropping their 2019 growth rates by 3 percentage points to more than 40 below last year’s gains.

“You’re having to spend more and more every year to grow at a faster rate,” said Noah Barrett, an energy analyst at Janus Henderson, in a telephone interview. “Companies routinely spent 120 to 130% of their cash flow never generating positive cash flow or earnings.”

In the early years, Wall Street had been happy to fund shale growth, framing the budding sector as a young, technology-driven industry, ripe for future returns. But as the shale fields aged, the returns never came and shareholders are now pushing for payback at the expense of additional oil growth.

The Permian has been the world’s major oil region over the past two years, growing 72 percent to 4.2 million barrels a day. But the pace of that growth is under threat as producers bow to investor demands to stop spending money.

Most of the independent producers cut their capital budgets after oil prices slipped at the end of last year. While companies including Diamondback Energy Inc. and Devon Energy Corp. have bolstered buybacks, investors warn there’s a long road ahead to recovery.

“They’ve been burned so many times in the past that there’s deserved skepticism” toward energy stocks, according to Barrett, whose firm manages $328 billion. “Just when we get progress, managements have short memories and start spending capital in an undisciplined manner.”

The smallest companies have been among the hardest hit.

Times should be good for Legacy Reserves Inc. and Approach Resources Inc., two small producers working in the oil-rich Permian. Crude prices are edging up, and big drillers want to expand there. Yet they’ve lost 99% and 87% of their buy Wellhead market value in the past year, and Legacy last month filed for Chapter 11 protection.