Shale drillers eye return to growth as oil price picks up
Companies are holding off until prices recover to $65 per barrel
As oil prices have recovered in recent weeks, oil market watchers have been trying to work out when US shale producers might start turning on the taps again. They got some answers this week.
EOG Resource' chief executive Bill Thomas told analysts that his company was still waiting on the sidelines, drilling wells but leaving them uncompleted, until prices recovered. But he added that if WTI prices stabilised at around $65 per barrel (b), EOG could resume "strong double-digit growth.'" Whiting Petroleum's chief executive James Volker said that his company, which is a leading producer in the Bakken, would probably started adding rigs if the oil price rose to around $70/b.
EOG and Whiting are among the strongest companies in the US shale patch so aren't necessarily a bellwether. Companies with weaker balance sheets or less attractive acreage may be slower to return to growth. But the comments provide some fresh insight into the thinking of US shale companies after the sharp oil price downturn upended the sector. WTI oil prices have recovered from their lows and are now around $62/b, approaching levels that could see at least some of the stronger shale drillers return to growth mode after a painful retrenchment over the past six months.
The price decline has taken its toll on the shale sector. Capital spending plans have been cut by around 40% across the sector and rigs pulled from the shale patch at a rapid rate. At the start of May the total US rig count stood at 905, down by half from the start of the year, according to Baker Hughes data. There are now just 679 oil-directed rigs in the US, the lowest level since 2010. The number of active rigs in the Bakken shale is down to 86 from 186 a year ago, according to North Dakota state data. The Eagle Ford shale rig count has fallen by half over the past year, from 220 to 110.
During the downturn, drillers have focused on squeezing the most from their best acreage, which has led to a sharp rise in the amount of crude produced per rig. Deutsche Bank analysts say there has been a 45% improvement in production per rig since the price decline. But that hasn't been enough to sustain US shale production growth. The US Energy Information Administration has said that May will see the first month-on-month production declines from US shale since the downturn as declines from legacy wells outpace new production. The Permian basin is the only shale play expected to see growth, a modest 11,000 b/d.
Deutsche Bank's analysts say that if the rig count stabilises where it is now production will start a sharp slowdown in late 2015 and into early 2016 as it will take time for drillers to respond to higher oil prices. The bank says year-on-year production growth for 2015 could slow to around 680,000 barrels per day (b/d) from 1m b/d in 2014. Then production would actually decline by nearly 200,000 b/d in 2016, though growth would return later in the year.
But recent statements coming out of the shale patch indicate a recovery could come quicker than expected. Not that everyone is convinced.
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