By October 18, 2017 Read More →

Wave of investment in US shale investment 2018: Total CEO

US shale

US shale production is expected to rise in 2018, even if prices fall. Anadarko photo.

Oil execs, bankers see 2018 boost in US shale producers production

Reuters reports major oil executives and bankers attending the Oil & Money conference in London are forecasting another surge in US shale production next year as operators have ramped up bets against another fall in oil prices.

According to the report, analysts have said that small- and mid-sized producers have boosted their activity over last year’s pace.  Such an increase could kneecap the recent rally in oil prices that pushed benchmark Brent prices to levels not seen since mid-2015.

Speaking at the conference, Total chief executive Patrick Pouyanne said he expects global oil demand to grow by 1.6 million barrels per day (b/d).

“Our U.S. colleagues are hedging like mad at $56 a barrel so we will see another wave of investment in U.S. shale, no doubt about it,” Pouyanne said.

But, US rig counts have fallen recently, hitting a four-month low, and US production has grown at a slower rate than the US Energy Information Administration had predicted earlier in the year.

The EIA reports that through July, production was up by 467,000 b/d.  In the late spring, the agency had forecast 2017 US production growth to land at 680,000 b/d, but the prediction has since been revised to 380,000 b/d.

Ben Montalbano, co-founder of PetroNerds says that could change.  Montalbano’s company tracks hedging practices at about 40 medium-sized oil producers.  He says those firms are more heavily hedged than at any point in the past six quarter.

The jump in hedging has paralleled the increase in prices.  The key WTI 2018 calendar swap which represents expected prices for 2018 was as high as $52.71/barrel this week and is one of the strongest levels since April.

This means producers will keep drilling even if oil prices drop.  Ian Taylor, chief executive of oil trader Vitol, told the conference that he predicts Brent prices to fall to $45/barrel in the coming year as US production increases.

Researchers at investment bank Tudor, Pickering, Holt & Co estimate that small and medium-sized US shale producers have hedged about 32 per cent of next year’s oil production at about $52/barrel.

“There is definitely going to be a pretty large surge in production next year,” Jamaal Dardar, TPH’s E&P research associate told Reuters.  Currently, the EIA forecasts US production in 2018 to hit 9.9 million b/d, but TPH sees output reaching 10.2 million b/d.

Total Chief Executive Patrick Pouyanne.

Pouyanne also cautioned that the sharp decline in investment since 2014 has resulted in a drop in development of new projects, which could result in an oil supply shortage after 2020.

According to Pouyanne, the rate of final investment decisions (FIDs) in exploration and production have shrunk too much since 2015.

“The number of FIDs from 2010-2014 averaged 35 FIDs per year … to add potentially 2.5 million b/d,” he said.

“Since 2015, it’s 12 per year … to add 1 million b/d that’s probably not enough. Post-2020, we will face an issue with these lower numbers of FIDs.”

Pouyanne told the conference that Total is likely to green-light development of the Libra offshore field in Brazil by year-end.  The field is expected to produce up to 150,000 b/d.

The Total chief also says he believes Russia and Saudi Arabia will continue with the OPEC production cuts, which have been extended to March 2018.

He adds the recent visit by Saudi Arabia’s King Salman bin Abdulaziz Al Saud to Russia “is a clear signal (that) it is in the interest of both countries to support the market … I will not be surprised to see the extension.”

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