The Strategist

Shale mining hits the highest level in three years

04/30/2018 - 05:53

Shale companies in the US continue to increase investment in drilling against the backdrop of oil prices soaring to 3-year records.
Last week, the number of drilling rigs used in US fields increased by another 5 units, and their total number - 825 - was a record since March 2015. This is reported by Baker Hughes, which has been monitoring activity in oil wells around the world for more than 70 years.

Since the beginning of the year, drilling volumes have grown by 10%, and rose twice compared to May 2016.

The deal between OPEC and Russia to limit production turned out to be a "gift" for American oil shale. A jump in oil prices to levels above $ 70 per Brent led to the fact that industry companies were able to achieve self-sufficiency for the first time in 10 years of shale mining, say Wood Mackenzie analysts. The cash flow that generates the sale of oil covers capital costs and allows them to grow.

According to Cowen & Co, 58 of the top 65 players in the market will increase investment in exploration and production: the average growth will be 11%, and the total amount will exceed 80 billion dollars.

The production cost in Permian, the largest US shale basin that yields more than 3 million barrels per day, fell to a mark "just above $ 20," said Scott Sheffield, chairman of Pioneer Natural Resources, which is three times lower than in 2014.

The development of technologies allowed to increase productivity by hundreds of percent: the return on new wells in Permian increased 2.6-fold over the 3-year period, from 240 to 624 barrels per day. The figure jumped by half, to 1399 thousand barrels, in the second largest pool, Eagle Ford, according to the US Ministry of Energy.

The industry average break-even point is 53 dollars per barrel. At such a price, shale companies can pay off loans and generate enough cash flow to invest in future production, says Wood Mackenzie analyst Andrew McConn.

According to the forecast of the US Energy Ministry, shale companies will achieve 7 million barrels of daily production in May for the first time. This number is comparable to the volume produced by Iran and the UAE together (the second and fourth OPEC members by market share).

The total production in the States beats historical records in a weekly mode (10.586 million barrels per day). If the production growth rate continues - by 1.2 million barrels per day per year - the US will be able to bypass Russia (10.9 million barrels per day) within four months and become the world's largest oil producer.