OPEC might not quite have the publicity clout of a tabloid couple, but it’s getting pretty close.
In the weeks leading up to its May 25 meeting, pundits were scurrying to predict the cartel’s next move. And once the announcement was made—another nine-month extension on supply restraint—email inboxes around the globe began to bulge at the seams.
There is nowhere near enough space in this column to cover the uproar, but I did find a few morsels particularly noteworthy. Of particular interest, of course, is the impact on and reaction of the shale players. After the first round of cuts was announced in 2016, U.S. operators responded quickly, boosting the rig count by 270 and growing production by 200 Mbbl/d since November 2016.
Andrew Slaughter, executive director for Deloitte’s Center for Energy Solutions, noted just prior to the OPEC meeting that despite these increases, shale “won’t come close to offsetting OPEC production cuts on its own.” Noting that continued cuts would stimulate continued growth, he wrote, “However, it is clear that U.S. production increases do not offset OPEC cuts, and thus the overall state of global oil markets is more dependent on inventory drawdowns than U.S. production.”
On the other hand, Rystad Energy forecasts that U.S. oil production could reach an all-time high during 2017, nearing 10 MMbbl/d by the end of the year. Rystad’s analysts are showing U.S. production growing at 95 Mbbl/ month during the year. “All of this growth stems from shale drilling as the more modest growth from Gulf of Mexico [GoM] deepwater fields is offsetting declines from other U.S. declining fields,” the report noted.
Given the potential for this type of growth, it’s not surprising that OPEC members are starting to pay more attention to the shale players. A Reuters article noted that U.S. bankers were among the attendees at the recent meeting in Vienna, and OPEC officials are planning a trip to Texas to determine whether or not the two groups can play nicely.
The article also stated, “OPEC’s latest calculus acknowledges the global clout of shale but seeks to hinder its growth by keeping just enough supply on the market to hold prices below $60 per barrel.”
But are shale players the only threat? Regarding the aforementioned deepwater GoM, Wood Mackenzie reported that through streamlined operations and a focus on core areas, some operators can break even at $50/bbl. And after suffering through cost overruns and project delays, Kashagan is making a comeback, according to Daniel Johnston of Daniel Johnston & Co. Inc., who spoke at a recent conference. “Kashagan is on the verge of finally potentially meeting some of its promises,” Johnston said.
Perhaps an OPEC visit to Kazakhstan is in order.
Contact the author at rduey@hartenergy.com.
Recommended Reading
Galp Seeks to Sell Stake in Namibia Oilfield After Discovery, Sources Say
2024-04-22 - Portuguese oil company Galp Energia has launched the sale of half of its stake in an exploration block offshore Namibia.
E&P Highlights: March 11, 2024
2024-03-11 - Here’s a roundup of the latest E&P headlines, including a new bid round offshore Bangladesh and new contract awards.
Empire Petroleum’s Williston Drilling Program Identifies New Zones
2024-05-16 - Empire Petroleum provided updates on its Williston Basin development drilling program in its first quarter 2024 earnings results.
Diamondback May Go Nuclear to Power Permian Basin Ops
2024-04-08 - Oklo Inc., a California fission power plant developer, on April 8 said it signed a letter of intent to collaborate with Diamondback Energy on implementation of nuclear energy for drilling operations in the Permian Basin.
Exclusive: Carbo Sees Strong Future Amid Changing Energy Landscape
2024-03-15 - As Carbo Ceramics celebrates its 45th anniversary as a solutions provider, Senior Vice President Max Nikolaev details the company's five year plan and how it is handling the changing energy landscape in this Hart Energy Exclusive.