Some shale oil companies in the United States have begun to reopen wells they had shut in earlier in response to the low oil prices, Energy Transfer said in a conference call this week, as quoted by Bloomberg.
About a quarter of the wells halted in the Permian are not back online, Energy Transfer’s chief commercial officer Mackie McCrea said, noting that the number of shut-in wells in the shale play account for some 8 percent of the total.
There could be a purely practical reason for that rather than a reason to believe prices are rising sustainably. The longer an oil well is shut in, the more uncertain it becomes whether it will be able to resume production, according to experts.
This is especially true about shale oil wells: there is a ton of expertise on how to shut in a conventional oil well and avoid loss of production. Shale oil wells, however, are a new thing even if the technology itself is not new. A shut-in for a couple of weeks would not do any damage, according to experts, but anything longer could be risky.
Meanwhile, some shale oil producers are cutting production further, Bloomberg wrote, notably Continental Resources and Callon Petroleum. Curtailment plans by different companies announced last month added up to a further reduction of 600,000 bpd in U.S. production.
And yet some producers are ready to start expanding output again when West Texas Intermediate reaches $25 and, presumably, stays there for more than a day. Among these, Bloomberg reported earlier this month, were Parsley Energy, Centennial Resource Development, and Diamondback Energy. Interestingly, Parsley Energy was among the supporters of a mandatory production cut in Texas.
WTI is now close to $25 a barrel, recording a string of five consecutive daily gains last week. This rally came on the back of returning optimism about demand as lockdowns in Europe and the U.S. begin to be eased. Analysts, however, have warned against too much optimism as the problem with a massive supply overhang and limited storage capacity remains.
By Irina Slav for Oilprice.com
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