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While the U.S. shale patch sustains high production growth with high yields and rising gross prices, managers want to avoid being penalized again for responding with a quick investment.
Although U.S. crude oil prices have doubled in the past 12 months, the number of oil rig operations – just 373 last week, according to Baker Hughes – remains below the levels of recent years. U.S. oil production is hovering nearly 15 percent below a record close to 13 million barrels a day.
Industry observers and insiders expected a rapid recovery in the U.S. shale industry. Now mild spending and sluggish oil activity may have a short supply as demand recovers.
“We’re making little investment as an industry around the world,” said Rick Muncrief, CEO of Devon Energy, one of the largest shale producers in the U.S.
Devon, however, has pledged to keep production flat this year and grow by just 5 percent in 2022 – less than half the annual rate of the shale patch in the three years before the pandemic rises.
After years of spending, Devon is among the shale groups that are committed to using higher price jumps to consolidate their balance sheets and return capital to investors through dividends or stock purchases.
“Days of need to grow [production] at double-digit rates, that’s behind it, “Muncrief told the Financial Times.” The industry has eaten too much. ”
The spectacular success of the shale in recent years made the U.S. the largest oil producer in the world, but it attracted a lot of investors. The sector burned hundreds of billions of foreign capital and was constantly making no profit.
But the stock market has begun to reward companies that are willing to return the capital, and put aside the urge to do another drilling. Shares of Diamond Shale producer have doubled this year and Devon’s has risen nearly 90%.
The U.S.-dominated S&P 500 energy sector outperformed all others this year as the market accepted a new mantra of low growth.
“If ever there was time to drill [shale] oil, it’s fine now, ”said Robert Clarke, vice president of upstream research consultancy for Wood Mackenzie.“ But why would you change the recipe? Not drilling is in their favor. ”
According to the consultancy, the reluctance of listed companies to jeopardize their capital gains at a higher cost means that private equity protection operators (who do not do the same study as public companies) have had the lowest growth in oil activities this year, according to the advice. Rystad Energy.
Some management believes there is an inventory of high-quality, highly profitable shale-containing rocks in the U.S. decreases, interfering with recovery. Although activity began in the prosperous Permian Basin in New Mexico and Texas, it has been slower in other areas, such as the Bakken oil field in North Dakota, where the best surface has been drilled.
As investors ’doubts about the long-term future of oil grow, Bradley Williams, CEO of Elephant Oil & Gas, a private drill focused on Wyoming, said.
“It’s a real headwind now,” he said. “Drilling a bunch of wells – what are we drilling? Is it a constructive environment for commodity prices, or are we going to see a rapid transition away from oil and gas that will result in soft commodity prices and ultimately poor yields?”
Even companies like ExxonMobil, which have made investments during the turmoil in the oil market, have been forced by shareholders to control their projected rising costs. In the Permian Basin alone, Exxon predicted in 2019 to increase production to 1m a barrel per day by 2024. This year the target was reduced to 750,000 b / d.
“Now we’re basically $ 15 a barrel bigger and those plans have been massively compressed, with no indication of a return,” Clarke said.
Rystad said shale production could still grow 1m b / d if prices remain at current levels next year, less than the 1.2mb / d seen in 2019, when oil prices were lower.
With less than 1 percent of global demand, it is unlikely that an increase in supply will supply the Opec cartel, which will meet this week to decide whether to raise its production to boost prices after more than a year of reduced supply.
“They are happy with the rise in prices because there is no fear of a shale response,” Williams said.
The Devon chief admitted that the poster would be comfortable with the “measurement” response given by the shale to the recent oil rally.
“I think they will have collective calm,” Muncrief said.
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