US shale production growth planned, despite OPEC warning

US shale firms plan Bakken, Oklahoma expansion

After facing two years of slumping commodity prices, US shale oil production is staging a comeback in North Dakota, Oklahoma and other shale regions.

The hotbed of shale activity, the Permian Basin, has already seen big jump in production activity in the past six months.  In 2016, the Permian saw $28 billion in land acquisitions, more than three times that of 2015.

At the CERAWeek energy conference in Houston this week, a number of oil companies, including Hess Corp, Chesapeake Energy, Continental Resources and others, outlined their plans to increase production.

If the companies follow through on these proposals, the United States would see a steady supply of crude exports through the next decade.

While American producers are looking to boost production, OPEC is frustrated.  Many members of the cartel along with non-member countries including Mexico and Russia, have opted to cut production for the first time in eight years by 1.8 million b/d to try to ease the global supply glut.

These efforts have been hampered by the increase in US shale production, which has resulted in a massive boost in domestic crude stockpiles.  In week-to-week reporting, US crude inventories were reported up by 8.2 million barrels on Wednesday, over four times the amount analysts had predicted.

As a result, oil prices fell by 5 per cent in trading Wednesday to close at $50.49.

The slump in oil prices has shown the growing impact that US shale production has on global supplies and prices, relative to OPEC.  The cartel once exercised dominant influence on global markets, but now, both sectors acknowledge the power shift.

Harold Hamm, founder and CEO of Continental Resources told Reuters “We are on something of an equal basis today with OPEC.”

Continental has hired oilfield services contractors in the Bakken to frack wells that had been left uncompleted when prices fell.

Hess, another large Bakken producer is adding four rigs this year and says it has more than a decade of drilling locations at current oil prices.

“We’re back to growth in the Bakken” Chief Executive John Hess said in an interview with Reuters.

Meanwhile, Chesapeake, a major producer with holdings in Pennsylvania and Louisiana, has drilled only 25 per cent of its land, leaving it with years of inventory to drill and frack.

“We have this great opportunity to run with,” Chesapeake’s head of exploration and production, Frank Patterson told Reuters. “We can develop what we have and grow.”

In the Permian Basin, Chevron expects its output to increase by 20 per cent by the end of this decade.

Analysts are concerned, though, that the increase in crude stockpiles shows US shale producers may be pumping too much and may create a new supply glut that will push down prices.

The US Energy Information Administration says production in the US is now about 5 per cent below the all-time high and the agency is forecasting output to rise 330,000 b/d from last year.

SHALE PRODUCERS, OPEC MEET AT CERAWEEK

 

 

Prior to Houston’s CERAWeek, a number of chief executives of US oil firms met with OPEC ministers at a dinner hosted by Lazard Ltd, an investment bank.

Attendees described the meeting, a first involving the two groups, as cordial.

 

“OPEC is trying to figure out U.S. shale,” Scott Sheffield, chairman of Pioneer Natural Resource Co, said in a Reuters interview. “U.S. shale is trying to understand where (oil) prices will go. We’re educating each other.”

 

“It’s really healthy that shale producers understand the importance of OPEC,” Hess told Reuters. “We’re all in the same boat.”

In late May, OPEC members will meet in Austria to determine if they will extend or deepen supply cuts in the second half of 2017.

OPEC Secretary General Mohammed Barkindo said earlier this week that for the group to renew the OPEC supply cut deal, non-OPEC members participating in the pact must be on board.

While American producers seem unlikely to agree to any broad output curb with OPEC, Hamm says “We have the potential to oversupply the market,” adding “we have a great responsibility not to do so.”

US shale production leaders, including Hess and Sheffield say they expect the group will renew the production curbs.