Released January 25, 2022 | SUGAR LAND
en
Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--Oil & Gas Production exploration and resource development twice took it on the chin in 2020. COVID-19 lockdowns smashed the demand side while environmental, social and governance (ESG)/climate activist investors whacked the investment side. It's no wonder that both daily production and reserve exploration went backwards.
In the prolific Permian Basin of West Texas, the 2020 production drop reversed a 10-year upward trend that had been the result of the shale revolution's horizontal drilling and multi-stage fracking. In the aftermath of the drop, the demand trend has been generally upward, as COVID-19 variants have threatened demand, but in the end have not kept people at home.
However, risk-averse producers and investors have held back on developing resources for two reasons, with uncertainty of demand stability topping the list. But a close second is the sea change in the shale-frenzy business model that saw the original "buy, grow, flip" model--which failed in the long run--replaced by a dedication to cash flow that slashed capital budgets to a fraction of their earlier selves.
The U.S. Energy Information Administration (EIA) expects February oil production in the Permian to reach a record at 5.076 million barrels per day (BBL/d). The EIA also sees Permian natural gas production reaching record highs of 97.5 billion cubic feet per day (Bcf/d) by December 2022. Overall, oil production from all major shale basins is expected to increase to 8.54 million BBL/d in February. West Texas Intermediate (WTI) prices, reaching $80+ per barrel, have fueled some renewed interest in production, within a narrow range of sources.
Much of that increase has come about as producers completed "drilled, uncompleted" wells (DUCs), as that number dropped in the Permian from a mid-2020 peak of approximately 3,500 to December 2021's estimate of 1,446. The Permian's numbers accounted for almost half of all DUCs in the U.S.'s major shale basins in 2021.
A worldwide drop in energy investment due to the COVID-19 crisis and ESG-related concerns is leading analysts to predict shortages and, as a result, a return to high prices not seen since 2014. A report issued by the International Energy Forum and IHS Markit predicts a worldwide production drop of 20 million barrels per day by 2030 without further upstream capex investment. The report states, "Upstream investment in the oil and gas sector in 2021 was depressed for a second consecutive year at $341 billion--nearly 25% below 2019 levels." Meanwhile, oil and gas demand is now near pre-pandemic highs and will continue to rise for the next several years, particularly in developing countries.
Signs of Dollar Inflows
Baker Hughes reported a rise in rig counts in the Permian, reaching 293 as of January 14. This number was up one from the previous week and up 189 year over year. For North America as a whole, the count was 792, about 60% higher year over year.
But as good as these numbers look, they are still about 200 rigs short, nationally, from pre-pandemic March 2020 counts. With the extremely short decline curve of shale wells, often playing out in 18 to 24 months, the drilling frenzy would have to continue at pre-2020 levels just to maintain output.
Bloomberg reported in July that almost $18 billion worth of investment had poured into U.S. energy stock exchange-traded funds more than at any time in 10 years and almost triple that of the first half of 2020.
Headline after headline last week proclaimed "when, not if" for $100 per barrel, as a pandemic-weary world overlooks omicron cautions and tries to return to normal. In a statement worthy of t-shirt distribution, Bridgewater Associates (Westport, Connecticut) hedge fund founder Ray Dalio told the Abu Dhabi Sustainability Week summit on 17 January, "Thank God for the oil producers." Dalio encouraged the continuation of oil and gas investment to counteract inflation during the transition to renewables.
As a result of the shale boom, the Permian Basin reversed decades of decline to become the most prolific basin in the U.S. and one of the top producers in the world. Its rich resources and mature midstream systems make it a favorite of producers and investors alike.
Industrial Info is tracking nearly $14 billion worth of active Permian Basin-related projects. Subscribers to Industrial Info's Global Market Intelligence (GMI) oil and gas project databases can click here for a list of detailed project reports.
Click on the image at right for a chart showing Permian Basin-related project activity by project type.
But to overcome worldwide demand shortages, it will take more than just the Permian producers or even Saudi Arabia to prevent shortages and costly $100 per barrel oil. Japanese international bank Mizuho was quoted by Reuters last week as saying that the five largest oil plays, including the Permian, would have to raise rig counts by an average of 13 per week over the upcoming eight-week period just to hold current volumes throughout the year. Actual gains over the last month have averaged two per week.
"Last year producers were able to keep costs down using a vast inventory of drilled, but uncompleted wells, which was necessary as a lot of production was hedged and unable to take advantage of higher prices," said Shane Mullins, Industrial Info's vice president Product Development Energy Markets. He continued, "With oil prices in the $80 per barrel range we are seeing a 20+% increase in upstream Capex as part of our Global Market Intelligence Platform."
With demand rising and production challenged, investors are racing to put money on $100 per barrel oil. Whether that will be enough to spur enough exploration to balance production and demand remains to be seen.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
In the prolific Permian Basin of West Texas, the 2020 production drop reversed a 10-year upward trend that had been the result of the shale revolution's horizontal drilling and multi-stage fracking. In the aftermath of the drop, the demand trend has been generally upward, as COVID-19 variants have threatened demand, but in the end have not kept people at home.
However, risk-averse producers and investors have held back on developing resources for two reasons, with uncertainty of demand stability topping the list. But a close second is the sea change in the shale-frenzy business model that saw the original "buy, grow, flip" model--which failed in the long run--replaced by a dedication to cash flow that slashed capital budgets to a fraction of their earlier selves.
The U.S. Energy Information Administration (EIA) expects February oil production in the Permian to reach a record at 5.076 million barrels per day (BBL/d). The EIA also sees Permian natural gas production reaching record highs of 97.5 billion cubic feet per day (Bcf/d) by December 2022. Overall, oil production from all major shale basins is expected to increase to 8.54 million BBL/d in February. West Texas Intermediate (WTI) prices, reaching $80+ per barrel, have fueled some renewed interest in production, within a narrow range of sources.
Much of that increase has come about as producers completed "drilled, uncompleted" wells (DUCs), as that number dropped in the Permian from a mid-2020 peak of approximately 3,500 to December 2021's estimate of 1,446. The Permian's numbers accounted for almost half of all DUCs in the U.S.'s major shale basins in 2021.
A worldwide drop in energy investment due to the COVID-19 crisis and ESG-related concerns is leading analysts to predict shortages and, as a result, a return to high prices not seen since 2014. A report issued by the International Energy Forum and IHS Markit predicts a worldwide production drop of 20 million barrels per day by 2030 without further upstream capex investment. The report states, "Upstream investment in the oil and gas sector in 2021 was depressed for a second consecutive year at $341 billion--nearly 25% below 2019 levels." Meanwhile, oil and gas demand is now near pre-pandemic highs and will continue to rise for the next several years, particularly in developing countries.
Signs of Dollar Inflows
Baker Hughes reported a rise in rig counts in the Permian, reaching 293 as of January 14. This number was up one from the previous week and up 189 year over year. For North America as a whole, the count was 792, about 60% higher year over year.
But as good as these numbers look, they are still about 200 rigs short, nationally, from pre-pandemic March 2020 counts. With the extremely short decline curve of shale wells, often playing out in 18 to 24 months, the drilling frenzy would have to continue at pre-2020 levels just to maintain output.
Bloomberg reported in July that almost $18 billion worth of investment had poured into U.S. energy stock exchange-traded funds more than at any time in 10 years and almost triple that of the first half of 2020.
Headline after headline last week proclaimed "when, not if" for $100 per barrel, as a pandemic-weary world overlooks omicron cautions and tries to return to normal. In a statement worthy of t-shirt distribution, Bridgewater Associates (Westport, Connecticut) hedge fund founder Ray Dalio told the Abu Dhabi Sustainability Week summit on 17 January, "Thank God for the oil producers." Dalio encouraged the continuation of oil and gas investment to counteract inflation during the transition to renewables.
As a result of the shale boom, the Permian Basin reversed decades of decline to become the most prolific basin in the U.S. and one of the top producers in the world. Its rich resources and mature midstream systems make it a favorite of producers and investors alike.
Industrial Info is tracking nearly $14 billion worth of active Permian Basin-related projects. Subscribers to Industrial Info's Global Market Intelligence (GMI) oil and gas project databases can click here for a list of detailed project reports.
But to overcome worldwide demand shortages, it will take more than just the Permian producers or even Saudi Arabia to prevent shortages and costly $100 per barrel oil. Japanese international bank Mizuho was quoted by Reuters last week as saying that the five largest oil plays, including the Permian, would have to raise rig counts by an average of 13 per week over the upcoming eight-week period just to hold current volumes throughout the year. Actual gains over the last month have averaged two per week.
"Last year producers were able to keep costs down using a vast inventory of drilled, but uncompleted wells, which was necessary as a lot of production was hedged and unable to take advantage of higher prices," said Shane Mullins, Industrial Info's vice president Product Development Energy Markets. He continued, "With oil prices in the $80 per barrel range we are seeing a 20+% increase in upstream Capex as part of our Global Market Intelligence Platform."
With demand rising and production challenged, investors are racing to put money on $100 per barrel oil. Whether that will be enough to spur enough exploration to balance production and demand remains to be seen.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
