Energy companies targeting inland shale basins in the United States are starting to reap the financial rewards of the North American production boom, with shares for big and marginal players alike posting huge gains.
With U.S. oil production expected to rise, this year should be the year of the bulls.
Nabors Industries Ltd., which owns and operates the largest land-based drilling fleet in the world, said its first quarter performance was hit hard by the severe winter that gripped much of North America this year.
Chairman Tony Petrello, the company's president and chief executive officer, said operating income from its activity in the Lower 48 states was down slightly from what he said was a strong fourth quarter 2013, but "better than expected" given the number of weather-induced disruptions.
Shares in the company [NYSE: NBR] are up more than 65 percent since last year despite a rough first quarter. And it's outperforming some of its peers by at least 20 percent in terms of share price increases year-to-date.
The U.S. Energy Information Administration (EIA) said weather conditions in the Lower 48 left crude oil production flat in some of the richest shale basins in the country. In its short-term market report for April, EIA said it expected accelerated development in shale during the next few months, however.
Oil services company Baker Hughes said 8,853 wells were counted in its latest survey, a 3.7 percent increase from the same time last year. Parts of the Woodford shale formation in Oklahoma and the Williston Basin in the Northern Plains saw the most activity, with a combined 130 new wells since last year.
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In its earnings report last week, Baker Hughes said [NYSE:BHI] its adjusted earnings per share increased 29 percent compared with the same quarter last year. Like Nabors, its share price is up more than 60 percent for the year.
EIA said it expects strong crude oil production from U.S. shale basins, primarily from southern plays and the northern plains area. Shale last year helped total U.S. output reach 7.4 million barrels per day, a number that should increase by another 1 million bpd this year. By next year, U.S. oil production is expected to reach 9.1 million bpd, just 500,000 bpd shy of the high-water mark set in the 1970s.
In the Bakken reserve area of North Dakota, oil consultant group Wood Mackenzie expects $15 billion in capital expenses during the first quarter alone. An overview of the energy sector shows a 9 percent increase in value year-on-year.
Given the rush to make up for a sluggish winter, the bulls will have their way with U.S. energy players.
By Daniel J. Graeber