Page 5 - NorthAmOil Week 48 2022

NorthAmOil COMMENTARY NorthAmOil

day (bpd) in December. This accounts for more or an increase of three rigs on this year. And it
than half of the US’ total tight oil output from would not be surprising if other producers took
the seven leading shale regions, which the EIA a similarly restrained approach in the face of
projects at 9.191mn bpd this month. It would rising costs.
also represent another production record for the
basin. What next?
At the same time, though, productivity The shale industry was once seen as a “swing
across all shale regions is falling after having producer” that could rival OPEC in controlling
peaked in December 2020 at 1,545 bpd per oil prices by ramping output up or down. This
new oil well. The EIA’s latest projections show was questionable at the time, and certainly does This gradual
new well production in the Permian dropping not appear to be the case today, given that shale
by 12 bpd month on month to 1,049 bpd in drillers are still limiting their response to price decline in
December. Across all the major shale regions, signals, and opting instead to pursue their exist- productivity does
it is anticipated to fall by 11 bpd m/m to 953 ing strategies largely independently of what
bpd. crude prices do. not appear to
This gradual decline in productivity does not Indeed, the administration of US President
appear to bode well for the future, given that Joe Biden has urged shale drillers to ramp up bode well for the
shale basins will only become more mature and production this year in order to send more
wells will be depleted. Indeed, drillers focused energy exports to Europe as European coun- future.
largely on the most productive sweet spots tries scramble to reduce their dependence
in recent years, especially during the oil price on Russian oil and gas. But these calls by
downturns, and the depletion of these areas will the Biden administration have largely gone
increasingly push them out into less productive unheeded.
parts of their acreage. This paves the way for OPEC to restore its
On top of this, the costs of drilling are esca- dominance over the market, if the group does
lating along with inflation. One producer, EOG not have to worry that the shale industry will
Resources, said recently that it expected oilfield act to neutralise its moves to adjust produc-
costs to climb by 10% next year, on top of a 7% tion levels. And it adds to speculation that the
rise in 2022. The company said it would main- shale boom is effectively over, even though
tain low single-digit oil production growth over there is still some way to go before production
the course of 2023, running 28-30 drilling rigs growth peaks.™

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