Oil prices have crossed $80. But don’t expect Shell Thriller to cost you a bonanza

Texas News Today

Shell companies plan to spend a little more money pumping oil next year, but most companies haven’t released their spigots, even though prices exceed $80 a barrel.

This year’s US capital investment in the oil patch is projected to be at its lowest level since 2004, a few years before the hydraulic fracturing boom made the United States the number one oil producer in the world. Analysts said oil companies will increase household spending by 15% to 20% next year. But it is still lower than it was before the pandemic, and much lower than the last time US crude oil prices reached their current high in 2014.

According to analysts and executives, Wall Street is putting pressure on US firecrackers to keep spending and oil production caps. Before the pandemic, US producers flooded the market with more barrels each time crude prices hit higher levels, but ultimately spent more money than they made. I did

Investors and banks are now pressuring oil companies to live within their means, paying off debt incurred during the shale boom and urging shareholders to return the excess cash. It also calls on companies to reconsider their future drilling plans and to address carbon dioxide emissions in response to environmental, social, governance or ESG concerns. Investor withdrawal from the region is the US sector’s role as a credible temporary hiatus in the global energy market, as participants worry that oil supply will be tight as demand from the pandemic slows. getting weaker.

“If you invest too much, your bottom line is too low,” said Chris Wright, CEO of hydraulic fracturing company Liberty Oilfield Services LLC.

Given rising prices, many oil producers will generate additional cash next year, even if spending increases, Wright said.

Oil companies have cut an estimated $55.8 billion in US spending this year, compared to $60.8 billion last year and $108 billion in 2019, according to investment bank Evercore ISI. Investments in the US oil sector peaked at about $184 billion in 2014.

Next year’s spending is unlikely to increase production significantly, as inflation and labor shortages are driving up drilling costs. This year, the Shell company went through most of the inactive wells that had been excavated but not yet completed and put into production. According to analysts, many drilling rigs need to be restarted to keep production flat, and contractors need to hire more people and drive up costs.

Some private shell companies are facing shortage of raw material.

Photo:
The Wall Street Journal’s Christopher Lee

The cost of oilfield service is increasing between 10% and 50% depending on the type of service. According to consulting firm Rystad Energy, about half of the 20% increase in next year’s spending is needed to cover cost inflation.

According to IHS Markit, many large companies can increase their spending by less than 5 percent. Meanwhile, the companies spending the most on spending are small private producers that have continued to ramp up oil production in West Texas and New Mexico’s Permian Basin this year.

In this region, the most active oil field in the United States, production has nearly reached pre-pandemic levels, but is still below that mark by about 1.5 million barrels across the country, US data shows. Production in other regions has stagnated or dropped this year.

The Mayborn Oil Company is one of the largest private oil producers in the Permian Basin. The company’s CEO Ken Waits said during last year’s pandemic, they had disabled 10 of the 12 drilling rigs that were in operation before the virus struck. We are currently running 19 rigs and will support more next year.

Still, the number of rigs that were actively drilling in the Permian period probably only continued to slowly crush upward, Waite said. This year, the number of oil and gas rigs in the region increased to 266, compared to 418 before the pandemic and 568 at the peak in October 2014.

“I don’t think the rig count will move up from here,” he said.

Some private companies do not expect to invest more money in drilling than this year. Linhua Guan, CEO of Texas-based private oil and gas producer Surge Energy, said his company currently operates three drilling rigs in the Permian Basin, down from its peak of eight in 2017. I said that I do. He said drilling is unlikely to return to that level in the near future.

Colorado-based manufacturer Taprock Resources LLC, which practices in the Permian period, has nearly tripled its annual production this year compared to last year and added five drilling rigs since October last year. But the company doesn’t plan to copy that faster trajectory next year, said Taplock CEO Ryan London.

“We’re not going to chase the price,” said London. “We know you can’t count on $80 forever, so chasing $80 is very short-sighted and long-term until you get to it. [the wells] Flow, it’s $60. “

Mr London said private companies, which would otherwise boost production, are plagued by shortages of raw materials, manufacturing equipment and labour. He said some people do not have access to adequate steel casings used for drilling, while others do not have access to the pump parts used to stimulate wells.

Many producers use hedging contracts to lock in prices for future production when prices fall, so they do not experience much of a price increase. Tim Dunn, CEO of Crownquest Operating LLC, one of the largest private producers in the Permian period, said the companies would return most of their money to investors as long as rising prices helped generate additional cash.

“That’s the only obvious way to get out of an underperforming area,” Dan said.

write to Collin Eaton at [email protected]

improvement and amplification
In previous versions of this article, the casing used in drilling was mistakenly described as cement. The casing is made of steel. (corrected October 12, 2021)

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Oil prices have crossed $80. But don’t expect Shell Thriller to cost you a bonanza

Source Link Oil price surged above $80. But don’t expect Shell Thriller to cost you a bonanza

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