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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Permian Drillers Prepare For Double-Digit Cost Jump

Permian

U.S. shale companies expect a double-digit cost increase in services across the oil patch, and the Permian in particular, as the industry recovered from the downturn and is now growing fast.

The Permian is the leader of U.S. oil production growth, and service costs in the most prolific shale play are set to continue to rise, shale companies and industry analysts expect, as drilling contractors, fracking crews, and frac sand, for example, are in high demand.

Oilfield service providers, who were hit hard during the slump, are now upbeat for the first time in three years, expecting a busy North American shale activity.  

U.S. oil production is already exceeding 10 million bpd – a level higher than Saudi Arabia’s current output, and the United States is expected to soon topple Russia as the world’s largest crude oil producer, possibly as early as later this year.

As the leading shale basin in the U.S., cost inflation is showing most prominently in the Permian.

Anadarko Petroleum Corporation, for example, expects service costs in its Permian operations to increase by between 10 percent and 15 percent, chief executive Al Walker said at the Scotia Howard Weil energy conference in New Orleans.

“We’re just going to see some natural creep in service costs that will just have to work its way into the system,” Walker said. “If oil prices rise higher, that will increase the pressure on prices.”

According to Westwood Global Energy Group, the supply chain in the U.S. onshore is stretched, and the market expects “double-digit” price increases this year.

Related: China's Oil Futures Launch With A Bang

The cost increase is expected to average around 15 percent, but in the proppant segment, the price inflation is significantly higher, Westwood said in January.

Commenting on upstream costs in the U.S. onshore, Wood Mackenzie said at the end of last year:

“The tension going forward will be between productivity gains (in our view, the greatest perhaps already realised) and resurgent cost inflation (still playing out).”  

By Tsvetana Paraskova for Oilprice.com

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