The Permian has led U.S. shale production growth in recent months and will continue to do so in the coming months, but the oil price rally so far in 2022 has also driven increased drilling activity in other shale basins with higher breakeven prices.
$90 oil is incentivizing more drilling activity in the Bakken in North Dakota, the Eagle Ford in Texas, Colorado’s DJ Basin, and in Wyoming, as the drilling economics at these high oil prices—the highest since 2014—are too attractive to pass up.
In fact, the economics are the best since the start of the shale revolution, some oilfield service firms say, as oil prices are high while many producers are disciplined in spending.
“Drilling economics today are better than they’ve ever been since the shale revolution started,” Chris Wright, chief executive officer at Liberty Oilfield Services, told Reuters.
Like the biggest oilfield service providers, Schlumberger and Halliburton, Liberty Oilfield Services also sees “an upcycle driven by rapidly tightening markets for oil & gas” in the U.S. industry, Liberty said in its 2021 earnings release on Tuesday.
“E&P operators are responding to oil and gas price signals. The public operators are maintaining discipline and will show only modest production growth this year, while the private operators are reacting more robustly to strong commodity prices,” Liberty Oilfield Services said in its outlook for this year.
Public supermajors ExxonMobil and Chevron plan a 25-percent and 10-percent increase in their Permian production this year, respectively. Many other public and private operators will also boost their oil and gas production in the Permian, where output hit a record high in recent weeks and is set to continue to grow.
The other, costlier basins are also seeing increased activity, albeit at a smaller scale than in the Permian. The basins in North Dakota, Wyoming, and Colorado that were slower to recover from the COVID-inflicted downturn are already seeing increased activity and production.
“It is encouraging that both the state’s industry and economy appear to be recovering from the pandemic- and market-induced downturn of 2020 sooner than anticipated. The number of rigs operating in the state continues to increase, with a reported 18 rigs as of December 2021,” the Wyoming State Geological Survey (WSGS) said in a January report on Wyoming’s oil and natural gas resources.
“In fact, in the October 2021 report by the Wyoming Consensus Revenue Estimating Group, the oil production estimate for 2021 improved by 31 percent compared to predictions made a year ago,” wrote Erin Campbell, state geologist and WSGS director.
“Recent forward-thinking projects have improved the outlook for Wyoming’s oil and gas industry into 2022 and beyond,” Campbell said in a statement carried by Wyoming-based news outlet County 17.
“We have seen a rebound in oil production in the state that’s not to where it was pre-pandemic but definitely on that course again,” Rob Godby, an energy expert at the University of Wyoming, told Wyoming Public Radio at the end of January.
Oil production in Wyoming, North Dakota, and Colorado may not return to the pre-pandemic peaks, but it is definitely on the rise as high oil prices make drilling and project economics great again.
Supply chain challenges and higher labor and equipment costs could be stumbling blocks for U.S. shale, especially for the basins with higher breakeven prices.
Still, U.S. crude oil production is set to hit a new record of 12.4 million barrels per day (bpd) in 2023, the Energy Information Administration (EIA) said in the January Short-Term Energy Outlook (STEO).
On Tuesday the EIA raised its production forecast, expecting U.S. crude oil production to rise to an average of 12.0 million bpd in 2022 and 12.6 million bpd in 2023—an annual record high and 200,000 bpd above last month’s estimate. The previous annual average record of 12.3 million bpd was set in 2019.
By Tsvetana Paraskova for Oilprice.com
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