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U.S. shale blocks resist the temptation of new drilling boom

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Despite the lucrative profits and soaring crude oil prices, US shale oil fields are still holding back substantial production increases as executives try to avoid being punished again for responding to rapid investment.

Although US crude oil prices have doubled in the past 12 months, according to statistics, only 373 oil rigs were operated last week. Baker Hughes ——Still far below the level of recent years. U.S. oil production is nearly 15% below the record high of nearly 13 million barrels per day set last year.

Industry observers and insiders had predicted that the US shale oil industry would recover quickly. Now, as demand recovers, tepid spending and sluggish oilfield activity may cause supply shortages.

Rick Muncrief, chief executive of Devon Energy, one of the largest shale oil producers in the United States, said: “We are underinvesting globally.”

Despite this, Devon has pledged to keep production flat this year and limit any growth in 2022 to 5%—less than half of the annual growth rate in the shale region where production has soared three years before the pandemic.

After years of spending, Devon is one of the shale groups that promised to use the windfall from rising prices to strengthen the balance sheet and return capital to investors through dividends or share repurchases.

“The days that need to grow [production] At double-digit rates, this has passed,” Muncrief told the Financial Times. “This industry has been overheated too many times. ”

The amazing production success of shale in recent years has made the United States the world’s largest oil producer, but it has begged many investors. The industry consumes hundreds of billions of external capital, but it has never been profitable.

But the stock market is beginning to reward companies that are willing to return capital and ignore the launch of another drilling boom. The share price of shale producer Diamondback Energy has doubled this year, while Devon’s share price has risen by nearly 90%.

The energy sector of the Standard & Poor’s 500 Index, dominated by American Petroleum Corporation, outperformed all other sectors this year because the market recognized the new low-growth criteria.

“If you have time to drill [shale] Oil, now is a good time,” said Robert Clark, vice president of upstream research at consulting firm Wood Mackenzie. “But why do you want to change the formula? Not drilling is good for them. “

YTD index growth (%) line chart shows that energy stocks outperformed the market this year

The consulting firm said that listed companies are unwilling to risk these equity gains by increasing spending, which means that private equity-backed operators-these operators will not face the same scrutiny as listed companies-accounted for moderate oilfield activity this year Most of the growth. Resta Energy.

Some executives believe that the high-quality and profitable shale-bearing rock inventory in the United States is cut back, Hinder recovery. Although activity in the prolific New Mexico and the Permian Basin of Texas has increased, activity has slowed in other areas, such as the Bakken Oil Field in North Dakota, where the largest drilling area is drilled.

Bradley Williams, chief executive of the privately-backed Wyoming Drilling Company Like Oil and Gas, said investors are also increasingly skeptical about the long-term future of oil.

“It’s really headwind now,” he said. “To drill a bunch of wells-what are we drilling? Is this a constructive commodity price environment, or will we see a rapid shift in oil and gas that will lead to weak commodity prices and ultimately poor returns?”

Even companies like Exxon Mobil that have a history of investing in turbulent oil markets are forced by shareholders to control the upstream spending of the plan. In the Permian Basin alone, ExxonMobil plans to increase production to 1 million barrels per day from 2019 to 2024. This year, the target will be lowered to 750,000 barrels per day.

“Now we are basically up US$15 per barrel, and these plans have been massively compressed, and there is no sign of a rebound,” Clark said.

Rystad said that if prices remain at current levels, shale oil production may still increase by as much as 1 million barrels per day next year-lower than the 12,000 barrels per day when oil prices fell in 2019.

In the case of less than 1% of global demand, this increase in supply is unlikely to cause trouble for the OPEC cartel. The OPEC cartel met this week to decide whether to increase its output after more than a year of supply cuts to support prices. .

“They are happy to push up prices because they no longer worry about the shale reaction,” Williams said.

The head of Devon agreed that the cartel was satisfied with shale oil’s “cautious” response to the latest oil price increase.

“I do think they will breathe a sigh of relief,” Muncliffe said.

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