Page 9 - NorthAmOil Week 02 2021

NorthAmOil COMMENTARY NorthAmOil

Shale drillers urge restraint

US crude prices are up at $53 per barrel, but leading shale drillers have

said they will proceed with restraint, and have urged their peers to do

the same

US OIL prices have rallied, reaching levels not seen
since February 2020, with West Texas Interme-
WHAT: diate (WTI) trading above $53 per barrel as of
Major shale exploration January 14. This is partly the result of OPEC and
and production firms its allies reaching an agreement last week that
have urged their industry will see an overall production cut extended until
to proceed with restraint. April, led by Saudi Arabia, even as Russia and
Kazakhstan were given the go-ahead to raise
WHY: their output slightly.
WTI prices have risen The agreement reached by OPEC+ permits
above $53 per barrel, Russia and Kazakhstan to increase oil produc-
but a new influx of tight tion by a combined 75,000 barrels per day in
oil onto the market could February and another 75,000 bpd in March.
undermine this. However, this will be more than offset by Saudi
Arabia agreeing to cut its production by an addi-
WHAT NEXT: tional 1mn bpd above its current quota during around capital allocation until we get to that
Several shale producers those two months, while all other members point,” she said in November at the BofA Securi-
have said they will will keep their output steady. The agreement, ties 2020 Global Energy Conference.
maintain flat production reached on January 5, provided a boost to oil Devon, which just completed its acquisition
or only raise output prices that were already strengthening on hopes of WPX Energy, has said it is planning to keep
slightly. that the roll-out of new vaccines against the production flat compared with levels it achieved
coronavirus (COVID-19) will help beat back in the fourth quarter of 2020.
the pandemic. “I have a hard time seeing the need for US
But US shale drillers – which have become producers over the next several years to get back
known for their ability to respond quickly to to double-digit growth,” Devon’s president and
oil price fluctuations, are treating the rally with CEO, Rick Muncrief, who previously ran WPX,
caution. Indeed, a handful of shale company was reported by Bloomberg as saying. “For this
CEOs have pledged restraint over the past few management team, if we really think about
days, including the heads of Devon Energy, Pio- 2021, let’s keep it flat.”
neer Natural Resources, Occidental Petroleum, However, just keeping production flat will
Cimarex Energy and Ovintiv. Some of them require Devon to drill and hydraulically fracture
spoke at a virtual conference hosted by Gold- new wells at a cost of around $1.7bn in main-
man Sachs last week. tenance capital, according to Muncrief. The
company is still in the process of finalising its
Shale restraint 2021 plan following the takeover of WPX and
Occidental’s president and CEO, Vicki Hollub, updated spending estimates are expected in the
has said her company’s focus is currently on debt coming weeks, but Saudi Arabia’s production
reduction – unsurprisingly given the company’s cut is not anticipated to change anything.
high debt load following its acquisition of Ana- “What you’ll see is cash flows potentially
darko Petroleum for $38bn in 2019. Including strengthen if commodity prices stay in this
Anadarko’s debt, the acquisition was valued at range or potentially strengthen further,” Mun-
$55bn, leaving Occidental with $40bn worth of crief said. “But it’s not going to change our activ-
debt that it is slowly paying down – it had shrunk ity level.”
to $38.5bn as of November 2020. Indeed, the Meanwhile, Ovintiv’s CEO, Doug Suttles,
pandemic came at a bad time for Occidental, described flat production as being “the new
undermining its debt-reduction efforts. growth” during the Goldman Sachs event last
Hollub said recently that she expected oil week, calling for the shale industry to show
prices to strengthen from 2022 in particular, as a discipline.
lack of exploration in recent years puts pressure “We need to see the global markets recover
on global supplies. and our industry needs to show discipline, and
“It’s just a matter of ensuring that we’re diligent that’s what we’re going to do,” Suttles said.

Week 02 14•January•2021 www. NEWSBASE .com P9