Investors, frustrated by years of poor industry returns, have punished companies that sought to increase production at the expense of returning shareholders and rewarded those who exercised discipline in capital matters.
Drilling new wells could increase supply at a time when oil sells for $ 70 a barrel, level profitability for US shale producers and OPEC.
These high prices, hurricane closures at US offshore wells and a rapidly declining order book of drilled but unfinished shale wells may prompt producers to restart drilling and test their commitment to continue spending flat.
The delay of shale wells waiting to be activated has strongly declined, the latest US data show, reducing a reserve that has allowed companies to maintain production without spending more.
Some executives say more beer will be needed to offset normal production drops and hurricane losses, and investors will have to accept it.
"Spending in 2022 will have to be higher just to maintain the volumes appreciated in 2021 and I think Wall Street in general is aware of that," asaid Nick O 'Grady, Managing Director of Northern Oil and Gas Inc (NOG.A) , which owns interests in wells in Texas and North Dakota.
FOUR YEARS LOWEST
New wells cost about $ 7 million each, with drilling accounting for about 30% of the total. With oil at $ 70 a barrel, producers could invest more money in drilling while still managing to increase shareholder payouts, analysts say.
The number of drilled but unfinished wells, called DUCs, fell to 5,957 in July, the lowest in four years, from nearly 8,900 at its peak in 2019, based on US data Energy Information Administration.
Operation of DUCs has kept capital expenditure stable. Group of 31 oil and gas producers followed by investment firm Cowen plan to spend only 1% more this year than last year, even though oil prices have jumped.
we companies have increased their crude volumes by 11% to 12 million barrels per day in 2019. But this year's production is around 11.4 million barrels per day (bpd), according to the EIA, and will decrease by 100,000 bpd to the bottom. 'at the end of this year, on the losses caused by Hurricane Ida, said the EIA.
Linda Htein, director of 'a Energy consultant Wood Mackenzie, said completing the DUCs was a great way to keep production going without adding a bunch of rigs or increasing capital spending.
Pioneer Natural Resources (PXD.N) has reduced its DUC backlog in the past 18 months. The shale producer may soon hire a third fracking crew, chief executive Scott Sheffield told Barclays CEO's Energy-Power conference this month.
" Right now we're sticking to two, "he told investors.
REDUCED THE INVENTORY
At current well completion rates, the EIA estimates that the main US shale deposit responsible for oil gains in the United Statesover the past decade has less than six months of DUCs remaining.
Unless shale producers start drilling new wells, the 'DUC's order book depletion "could limit the growth of oil production in the United States in the coming months " the EIA said.
The number of recently drilled oil rigs in the United States was around 401, according to data from Baker Hughes Co (BKR.N) aired on Friday. But that number of rigs is historically low compared to other periods when crude oil futures prices were near similar levels or at even lower prices.
While the number of US oil rigs has increased, it has been historically low compared to other periods when crude oil futures prices at the start of the month were near similar levels or at even lower price.
DUCs have been a very powerful "short-term fix, but not a long-term fix "said Mark Finley, a BP Plc alumnus (BP.L) an economist who is an energy researcher at the Baker Institute for Public Policy at Rice University.
"At some point, the inventory of excess drilled but unfinished wells will run out. By Arathy Nair in Bengaluru; edited by Gary McWilliams and JaneMerriman
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