Home Business Shale oil wraps up an underwhelming year, girds for lower growth

Shale oil wraps up an underwhelming year, girds for lower growth

9 min read
Comments Off on Shale oil wraps up an underwhelming year, girds for lower growth
0
28


Article content

The shale oil patch this week closes the door on a disappointing year while bracing for weaker output gains in 2023, hamstrung by rising costs, dwindling reserves and pressures to hold down spending.

U.S. oil production this year will rise by an average of 620,000 barrels per day, according to the latest government estimates, a third less than the roughly 1 million bpd some forecasts called for at the start of the year. That shortfall has undercut shale’s influence on global markets and helped lift prices for the second year in a row.

Advertisement 2

Article content

Article content

Gains next year will be harder to come by, said Scott Sheffield, chief executive officer of top Permian producer Pioneer Natural Resources. He predicted 300,000 bpd to 400,000 bpd of increased shale production in 2023.

“Most companies are drilling tier two and tier three inventories now,” having tapped their best prospects, Sheffield said in an interview on Friday. “Less quality production is coming out of the Permian, out of the Bakken,” he said, referring to the top two U.S. shale basins.

Weakening output gains come despite historically strong demand in the wake of Russia’s invasion of Ukraine. Brent futures on Friday settled at $85.91 per barrel, a level that typically would spur producers to pursue higher prices with drilling increases. For the year, Brent is up about 10%, after jumping 50% in 2021.

Advertisement 3

Article content

LOOKING FOR $90/BARREL

Sheffield predicts global crude to average about $90 per barrel in 2023, with an potential upside of about $120, higher than current levels.

A more optimistic production view from energy technology firm Enverus – which forecasts an about 500,000 bpd increase next year – is still below this year’s tepid level.

“These headwinds are expected to persist,” said Chetan Sharma, a senior associate with Enverus who cited supply chain constraints and uncertainty over what the OPEC cartel will do.

Denver-based Civitas Resources, Colorado’s largest producer, said the regulatory environment also has made it difficult for companies to ramp up production quickly.

“If we want to increase significantly as an industry, we would need to shorten permit cycle times,” said CEO Chris Doyle, pointing to an 18-month lead-time for a new drilling permit.

Advertisement 4

Article content

Civitas grew volume about 4% year-over-year and anticipates relatively flat production in the coming year as it prioritizes free cash flow and balance sheet strength over growth.

OLD WELLS PUMP LESS

Pioneer and other shale producers are experimenting with oil recovery techniques that could eventually squeeze more oil out of older wells. The maturing of shale fields became a bigger problem for industry growth this year.

In the near-term, Sheffield warned oilfield inflation, which ran around 10% to 15% this year, will persist and limit production growth. Another restraint is investor demands to focus on returns over volume increases.

Pioneer and other oil firms are no longer contracting with drillers or fracking firms to have new equipment built because of the financial demands.

“We’re not doing that this year because they would charge another 30% to 40% more, and we don’t know what is going to happen in three or four years, by the time we’ve made that investment,” Sheffield said. (Reporting by Liz Hampton in Denver; Editing by Daniel Wallis and Josie Kao)

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.



Source link

Load More Related Articles
Load More By 
Load More In Business
Comments are closed.

Check Also

How Basketball Changes Betting Industry And How You Can Use It?

Updated: Jan 29, 2023 Basketball is one of the most common sports among bettors. To unders…