Production growth from high-cost SHALE plays in the US has accelerated as oil prices head towards triple digits

2022-06-05 0 By

As oil prices head toward triple digits, producers in some high-cost shale basins are buying assets and hiring workers who will be a new driver of production growth, according to US oil prices topped $93 last week, rising about 65 per cent in the past 52 weeks to their highest level since 2014.Us producers are increasing spending at double-digit rates as fuel demand soars and fears abate that the Organisation of the Petroleum Exporting Countries will launch countermeasures.Some executives say high prices and relatively low service costs are making production economics the best they have been in years.The companies are buying assets of U.S. oil, pipeline and gas-processing competitors, betting that higher prices will cover higher labor and equipment costs.”The economics of drilling today are better than at any time since the shale revolution began,” said Chris White, CEO of Liberty Oilfield Services.Private companies in particular are accelerating output, he said.Secondary fields such as Colorado’s DJ Basin, Wyoming’s Powder River, Louisiana’s Haynesville and North Dakota’s Bakken shale, which last year lost their status as the nation’s second-largest oil producing region, have seen more activity.$20,000 acquisition stimulate output according to Cowen&According to analysts at Co, U.S. independent producers are spending 13% more than they did a year ago.Among secondary fields, gas-rich Haynesville was the only one to fully recover from the 2020 oil price crash.Other shale fields, including the second largest producing field, are increasing their holdings and rig counts.Bob Phillips, CEO of Crestwood Equity Partners, an energy pipeline company, said: “When you look at the price of oil in the Bakken Basin, the immediate price is close to $90.That doesn’t happen very often.”Last week, Crestwood completed a $1.8bn deal to buy Oasis Midstream Partners’ oil, gas and gas-processing assets in North Dakota and Texas as part of a plan to become the top three Midstream operators in the Bakken, Powder River and Permian shale.Andrew Dietmar of Enverus, which specialises in energy mergers and acquisitions, says shale deals are likely to accelerate this year.At the Powder River field in Wyoming, Continental Resources has made several acquisitions since last year, most recently from Chesapeake Energy.Mr Phillips of Crestwood said the acquisition could restore production in the area.Ben Dale, managing partner of energy investor Kimmeridge Management and interim CEO of Civitas Resources in Colorado, said every basin is getting a lift from higher oil and gas prices.”The margins are extremely high,” he said.In fact, I think prices may stimulate too much production, leading to oversupply.”Natural gas production in the Haynesville shale in east Texas and Louisiana is expected to reach a record 14.1 BCF/d this month, according to the US Energy Information Administration.Output growth is taking place, so production forecasts for some areas are proving too low.Data and analytics firm East Daley Capital estimates production at Haynesville will grow 12% this year, based on production from 37 active RIGS.Rob Wilson, the company’s vice president, said: “There are now 42 drilling, five more than expected this year.Our current forecast has further upside.”Despite this, production has not yet returned to peak levels outside Of Haynesville and the Permian.Hess, the Bakken’s producer, aims to increase its overall production by 12 to 15 per cent this year.Chevron plans to increase its Permian shale oil production by 10 per cent, and ExxonMobil says it can produce 25 per cent more oil and gas from its Permian assets.In the Bakken, oil production was around 1.2 million b/d, down from a peak of 1.52 million b/d in late 2019.Oil production in the Eagle Ford Shale in South Texas was 1.1 million b/d, down from a peak of 1.7 million b/d in early 2015.Analysts at Mizuho Securities say US producers are adding three RIGS a week, but they need to add 11 a week to keep production at current levels.RON Ness, head of the North Dakota Petroleum Council, said supply chain challenges could limit production growth this year and investors could demand higher returns.”I’m not sure we’ll see 1.5 million barrels a day of production again unless $100 + oil changes investor perceptions towards growth,” he said.————— Market Matrix: Futures & Derivatives Trading Research Center – Find your best trading opportunities from our selected stream of top news sources like Bloomberg/Reuters /CNBC/WSJ!+++ Top investment banks macro/stock index/crude oil/gold research report and strategy!+++ Economic data/industry report in-depth interpretation!+++ Follow ++ View all resources