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U.S. shale companies to boost oil output by 500,000 bpd by month-end

Devika Krishna Kumar and Jennifer Hiller/New York
Filed on June 20, 2020

(Reuters)

U.S. shale producers are expected to restore roughly half a million barrels per day (bpd) of crude output by the end of June, according to crude buyers and analysts, amounting to a quarter of what they shut since the coronavirus pandemic cut fuel demand and hammered oil prices.

Such a swift rise in U.S. production would complicate efforts by top producers Saudi Arabia and Russia to encourage global allies to fulfill their pledges to make record production cuts. They, along with allies in a group known as OPEC+, agreed to big cuts in April to balance oil supply to prop up prices, and anticipated similar economic cuts by the likes of the United States as well.

U.S. producers cut supply by roughly 2 million bpd. But the recovery in benchmark oil prices to around $40 a barrel makes some shale output profitable again, even though that level is unlikely to spur additional new drilling activity. Larger producers are re-opening the taps in low-cost plays in Texas, but also in expensive shale basins in North Dakota and Oklahoma.

"With prices where they are now, if they stay above $30, I wouldn't expect any significant curtailments from us in Q3 or beyond," Devon Energy Corp Chief Executive David Hager said at a J.P. Morgan energy conference on Tuesday.

Fracking activity tracker Primary Vision estimates as much as 500,000 bpd of production will return to the market by month-end, while Rystad Energy estimates 400,000 bpd could be added to the market between June and August.

"Some of the bigger guys that we work with are starting to turn everything back on," said Joshua Wade, an oil marketer in Oklahoma, who works with producers to transport barrels and buys lease volumes.

Producers are also pumping oil out of storage, which filled when demand plummeted as billions of people worldwide stopped traveling due to lockdowns to slow the spread of coronavirus. Weekly oil data shows U.S. output at about 10.5 million bpd, its lowest since March 2018 and off the all-time monthly record of about 12.9 million bpd reached in November, according to U.S. Energy Information Administration data.

Much of the declines came from shale wells that were choked back but not shut-in completely, several shale company executives said.

"We were able to shut in thousands of wells with really minimal time and effort. And we can bring those back on with really minimal time and effort, too," EOG Resources Inc Chief Operating Officer Lloyd Helms said at a Tuesday industry conference.

Diamondback Energy Inc focused on curtailing volumes rather than fully shutting wells, Adam Lawlis, vice president of investor relations, said in a statement.

About 8,000 bpd of the 10,000 bpd of oil that shale producer Devon curtailed came from choking back wells or slightly delaying wells.

"We're in the process of bringing all of that back on," Hager said.

Prices in cash markets reflect anticipated new supply. Crude oil for July delivery out of Midland, Texas, the heart of the Permian basin, sank to a discount to benchmark futures.

- Reuters


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