Business & Investment

U.S. shale could confuse investors and increase Reuters drilling as wells backlog shrinks

© Reuters. File Photo: Pumpjack is operating in the oil and gas production area of ​​the Permian Basin near Odessa, Texas, USA on February 10, 2019.Reuters / Nick Oxford / File Photos

By Arathy SNair

(Reuters)-US energy producers once waited for a large number of wells to go live and may have to resume drilling immediately to prevent a drop in production, executives and analysts said. Said.

This means increased spending, which could upset investors who have recently benefited from shale companies prioritizing shareholder returns over increased production.

Diamondback (NASDAQ :), Pioneer Natural Resource, Devon energy (NYSE :) For example, we have redirected rising cash returns to dividend growth, variable distribution, repurchases, and further debt reduction.

Investors were dissatisfied with the long-standing low returns from the sector, punished companies seeking to increase production at the expense of shareholder interests, and rewarded companies that showed capital discipline.

Drilling new wells can increase supply when oil is sold for $ 70 a barrel. This is an equally beneficial level for US shale and OPEC producers.

With these high prices, the closure of hurricanes at offshore wells in the United States, and the rapid shrinkage of the backlog of drilled but unfinished shale wells, producers test their pledge to resume drilling and keep spending flat. There is likely to be.

According to the latest U.S. data, Sherwell’s backlog waiting to turn on has plummeted, reducing reserves to help businesses maintain production at less cost. ..

Some executives say more shale is needed to offset normal production declines and hurricane losses, and investors need to accept it. “We will have to spend more in 2022 just to maintain the amount we enjoyed in 2021. I think Wall Street is generally aware of that,” Texas and North Dakota said. ..

Low price for the first time in 4 years

The cost of each new well is about $ 7 million, and drilling accounts for about 30% of the total. With $ 70 a barrel of oil, analysts say producers can spend more on drilling and still pay more to shareholders.

Based on data from the US Energy Information Administration, the number of drilled but unfinished wells called DUCs fell to 5,957 in July, the lowest in four years from the peak of about 8,900 in 2019.

Graphics: Well completion outperforms new drilling: https: //

By utilizing DUC, we were able to keep capital investment flat. A group of 31 oil and gas producers tracked by investment firm Cohen will spend just 1% more this year than last year, despite soaring oil prices.

US companies increased crude oil levels by 11% in 2019 to 12 million barrels per day. However, according to EIA, this year’s production is about 11.4 million barrels (bpd) per day, a decrease of 100,000 barrels / day by the end of this year. , EIA said about the loss from Hurricane Aida.

Linda Htein, director of energy consultancy Wood Mackenzie, said completing DUC is a great way to maintain production without adding large numbers of rigs or increasing capital investment. rice field. Pioneer Natural Resources (NYSE :) has reduced the DUC backlog in the last 18 months.CEO Scott Shefield said this month that shale producers may soon hire a third hydraulic fracturing crew. Barclays (LON :) CEO Energy-Power Conference.

“Now we’re sticking to the two,” he told investors.

Inventory reduction

With current well completion rates, the EIA estimates that less than six months remain in the top US shale fields that have contributed to US oil growth over the last decade.

Unless shale producers start drilling new wells, running out of DUC backlog “may limit growth in US oil production in the coming months,” the EIA said.

The number of oil rigs recently drilled in the United States is about 401, data from Baker Hughes Co showed on Friday. However, its rig count is historically low compared to other periods when crude oil futures prices were at about the same level or even lower.

Graphics: Futures Prices and US Oil Rigs: https: //

Mark Finley, a former BP (NYSE :) Plc economist at Rice University’s Baker Institute for Public Policy, said DUC is “a very powerful short-term solution, but not a long-term solution. “.

“At some point, there will be no inventory of excess wells that have been drilled but unfinished.”

(Edited by Gary McWilliams and Jane Merriman by Arathy Nair in Bangalore)

U.S. shale could confuse investors and increase Reuters drilling as wells backlog shrinks U.S. shale could confuse investors and increase Reuters drilling as wells backlog shrinks

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