Page 7 - NorthAmOil Week 37

NorthAmOil COMMENTARY NorthAmOil
drilling during a time of heavy investor pressure to focus on returns over growth.
Comments made by the head of one of the leading Permian drillers, Pioneer Natural Resources, on September 16 back this up. “There will be no intention to add rigs over and above our original plan,” Pioneer’s CEO, Scott Sheffield, said, adding that shareholders had warned him they would sell off Pioneer stock if the company activated more rigs than expected. “That’s how disciplinedtheywanteverybodytobe,”hesaid.
Instead, some shale drillers are already taking advantage of the immediate rise in crude prices to hedge a larger proportion of their production, locking in higher prices. Among these is pri- vately owned Paloma Resources, which said it was taking this step on September 16.
“We’re looking at this as an opportunity to capture a short-lived, meaningful bump,” Palo- ma’s president, Chris O’Sullivan, said. Echoing Sheffield, he added that his company did not expect to adjust its drilling plans, which are diffi- cult to change quickly.
What next?
Shale production can only be expected to grow significantly as a result of the Saudi outage if oil prices remain elevated for longer – over a period of weeks or months. Consultancy Enverus’ vice-president of market intelligence, Berna- dette Johnson, has said that if the attacks lead to sustained US oil prices in the mid-$60 per barrel range, the country’s output could rise by about 2mn bpd in 2020, from about 1mn bpd this year.
In the shorter term, however, shale drillers
are unlikely to come to the rescue, so the SPR may yet need to be tapped if Saudi’s Abqaiq oil-processing facility is not brought back online quickly.
As of last week, the SPR held 644.8mn bar- rels of oil across four sites in Texas and Louisi- ana, according to the US Department of Energy (DoE). This included 250.3mn barrels of sweet crude and 394.5mn barrels of sour crude. In 2016, the DoE said the US could move up to 2.12mnbpdofSPRcrudetoglobalmarkets,but as much as 1.74mn bpd of additional marine distribution capacity would likely be needed in the event of an outage at Abqaiq. However, this estimate was made before booming exports of US light, tight oil (LTO) started to put a strain on the country’s crude export infrastructure.
Nonetheless, consultancy Rystad Energy said in a note that the US remained one of the few countries that could expand exports in the short term in the event of a critical supply shortage. “We believe US crude exports could potentially be increased by about 1mn bpd, from 3mn to 4mn bpd, if prices allow for higher utilisation of the current crude exports capacity,” Rystad’s head of oil market research, Bjørnar Tonhaugen, said. “Other countries with available capacity to increase exports by a few hundred thousand bar- rels per day each include UAE, Russia, Kuwait and Iraq,” he added.
It would thus not be surprising if these coun- tries also ramp up production, as Trump has suggested, in response to any prolonged Saudi outage that cannot be immediately addressed by crude in storage.™
Some shale drillers are already taking advantage of the immediate rise in crude prices to hedge a larger proportion of their production.
Shale drillers are not expected to ramp up output in the short term in response to the Saudi outage.
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