Page 10 - NorthAmOil Week 02 2021

NorthAmOil COMMENTARY NorthAmOil

This was echoed by Cimarex’s CEO, Thomas $30s or lower $40s per barrel. It has estimated
Jorden, who said during the Goldman Sachs that this year’s higher prices could push shale
event that his company would be “highly dis- drillers’ cash from operations up by 32%.
ciplined in setting a budget”. Rising prices in Rystad believes the potential for a new surge
recent years have “tended to be a bit of a mirage”, of shale supply being added to the market
he warned. remains, noting that cash from operations is a
Some major shale drillers will allow some key driver of US tight oil activity. If drillers can
growth to occur, though. Pioneer, for example, is stay within their cash flows, the current oil price
maintaining its initial production growth target level of around $50 per barrel will be enough to
of just 5%, unchanged following the announce- allow for a ramp-up in new spending and drill-
ment of Saudi Arabia’s output cut. ing, the consultancy said last week.
“I never anticipate growing above 5% under “This increased activity has already started to
any conditions,” Pioneer’s CEO, Scott Sheffield, manifest itself, with rig activity for tight oil up
said during the Goldman Sachs event. “Even 60% since the low point in August last year,” Rys-
if oil went to $100 a barrel and the world was tad head of upstream research, Espen Erlingsen,
short of supply,” he said, the economics would said. “Completion activity is also recovering,
not support adding rigs because service costs measured by the number of wells started to be
would cut into margins. completed by month.” Surges of new
A question remains over how long those
What next? shale drillers that have pledged restraint will be tight oil output
Producers are currently in the process of final- willing to maintain that if prices remain stable are seen as
ising their fourth-quarter results for 2020, and a or even strengthen further. Given the ongoing
clearer picture of output and targets for this year wave of shale industry consolidation, there are having helped
will emerge when those are announced. fewer companies left to buck the trend in any
The last few years have illustrated how shale meaningful way, so it is possible that many of maintain
drillers can quickly add rigs in response to oil the major companies will maintain relative dis-
price improvements, but they have also been cipline, at least in the short term. But as Rystad downward
blamed for contributing to the global oversup- says, even this scenario could allow for new pressure on crude
ply. Surges of new tight oil output are seen as growth.
having helped maintain downward pressure on Another factor will be what OPEC+ decides prices.
crude prices, making it more difficult to bring to do beyond March. It has been suggested,
about a definitive end to the downturn. given which countries are cutting output and
Major producers have shown that they are which are raising it, that Saudi Arabia’s influ-
wary of continuing this cycle, and their desire ence in the group is waning, while Russia’s is
for restraint is bolstered by shareholder pressure strengthening. Allowing Russia to raise pro-
to provide better returns, which has grown in duction has also been noted as a possible sign of
recent years. Consultancy Rystad Energy says future discord between the two countries, which
that in the top two US shale regions, some com- – as illustrated in March 2020 – has the potential
panies can make a profit at price levels in the to hit oil prices hard.™

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