U.S. shale oil companies keeping production and budgets tight 2021 and beyond
Energize Weekly, June 9, 2021
U.S. shale drillers are continuing to limit production and spending with the return to pre-pandemic levels years off, according to Oslo-based energy analyst Rystad Energy.
Oil output is projected to drop 5.2 percent, about 211,000 barrels a day, compared with 2020, for a group of 30 shale operators who accounted for 60 percent of the country’s light oil production in 2020.
Even as the market outlook is improving with stable demand growth and vaccines anticipated to curb the COVID-19 pandemic, the oil shale industry is not deviating much from its initial, tight-fisted 2021 guidance, Rystad said.
Gas producers, on the other hand, are forecast to add 500 million cubic feet a day of output compared to 2020, even as capital expenditures are down 6 percent for the year.
“Aggressive growth out of the Haynesville is being offset by a large group of public operators in Appalachia targeting a more moderate plan to maintain their output,” Rystad said.
Oil shale operators are set to slightly raise their 2021 drilling and completion budgets by $635 million, or about 2 percent, compared to 2020.
Rystad said that production will begin to ramp up in the second half of the year and into 2022 and bring online the inventory of drilled but uncompleted wells from 2020. Fourth quarter 2021 output is expected to be 12 percent higher than the first quarter and 2 percent above the fourth quarter of 2020.
Still, output from the Permian Basin, the country’s most productive field, is expected to decline by 6 percent from 2020, down another 0.3 percent from the previous 2021 estimate. The cutbacks are coming from some of the operators, such as Occidental and Diamondback, while Permian independents, including Matador, Pioneer and Cimarex, are increasing production.
ExxonMobil is projected by Rystad to see year-on-year production increase in the fourth quarter from its Permian assets.
On the natural gas production side, Rystad’s peer group of nine public operators in the Appalachia and Haynesville plays offers a different story. While a 3.3 percent production increase overall is expected, it is really a tale of two basins.
In the Appalachian Basin, output is expected to range from flat to low single-digit increases, while in the Haynesville two companies – Comstock and Goodrich – have announced ambitious plans to grow production by 9 percent and 20 percent respectively.
“Using implied volumes for the fourth quarter, we can estimate a staggering increase of 20 percent for Comstock and 47 percent for Goodrich from the same months a year earlier,” Rystad said.
Globally, upstream exploration and production companies cut spending to protect cash flow with budgets down $145 million in 2020 and down $140 billion in 2021, for an overall reduction of 27 percent from original capital budgets.
The shale oil sector was the hardest hit over the two-year period with budgets cut by $96 billion over previously announced spending, a 39 percent drop for the sector.
In February 2020, before the pandemic hit, Rystad had forecasted total oil industry investment for the year at $530 billion, about the same as it had been in 2019.
“Rystad Energy expects the effect of the pandemic to be a lasting one as – even though spending will start growing from 2022 – it will not return to the pre-pandemic level of $530 billion,” the analytic firm said. “Growth will be limited and investments will only inch up annually, rising to just over $480 billion in 2025, when this report’s forecast ends.”
