• Oil Drillers Restart Production in the US

Safety

Oil Drillers Restart Production in the US

Jun 10 2020

Despite oil prices tumbling to historic lows in April, shale drillers in the United States have started to ramp up production as the country begins to emerge from COVID-19 lockdowns. At the end of May, Bloomberg reported shut-in production in the Bakken Formation was around 475,000 b/d. This represents a 7% decrease on the previous week’s figures, suggesting drillers are starting to revive wells that were shut-in during to the COVID-19 pandemic.

Shale majors pledge to “accelerate” production

The arrival of June saw plenty of optimism from several major shale companies, with Texas-based company EOG Resources pledging to “accelerate” production by the end of the year. Analysts also noticed a reduction in hedging exposure, implying the company is optimistic about an upward oil price trend.

Fellow Texan company Parsley Energy says it plans to have the “vast majority” of shut-in production back online by the end of the month, which would see around 400 wells start to pump oil again. The buoyant attitude is largely thanks to the swift price recovery that has seen oil climb from negative figures in April to more than US$30 a barrel for WTI and Brent. Significant production cuts from OPEC, coupled with a sharp recovery in demand from both the Chinese economy and local US consumers, has helped establish a bullish market sentiment.  

Bjornar Tonhaugen, Senior Vice President and Head of Oil Markets at Rystad Energy, says evidence suggests the downward cycle could be coming to an end. “However, what will determine the short term trajectory for US oil production is how quickly operators bring back parts of our estimated 1.65 million bpd of shut-in well production,” he adds.

Analysts cautious about “recovery”

While some analysts are optimistic, others warn there’s still plenty of ground to cover before the term “recovery” can be thrown around. The surplus may be receding but compared to the 170+ fracking fleets operating in the Permian Basin last year, there are currently just 20 or so extracting oil. Rigs are also on the decline, with just over 200 reported in the first week of June.

Profits is a major issue, with analysts asserting that while US$30 a barrel may entice companies to open up shut-in wells, prices will need to climb to at least US$45 a barrel to spark a true recovery and support new drilling projects.

Recovery or not, the oil industry is navigating volatile territory. To find out more about the repercussions and what’s ahead, don’t miss ‘The Only Certainty is Uncertainty for Corona-Stricken Oil Industry.


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