Despite the fact that U.S. shale producers have brought back a quarter of the output they had curtailed, production is set for a new slump after the summer as new well drilling has ground to a halt and won't be able to sustain output levels, analysts and oil executives told Reuters.
U.S. oil firms are estimated to have curtailed around 2 million bpd of crude oil production in May after prices plunged and demand crashed in the pandemic.
By early July, producers had restored some of the production, estimated at around one-quarter of the curtailments.
Houston-based Noble Energy plans to bring back by the end of July most of the oil production it had curtailed in the second quarter.
In the middle of June, Continental Resources - which had shut in 70 percent of its output - said it expects to partially begin resuming production but still expects to curtail approximately 50 percent of its operated oil production.
ConocoPhillips also said in June it expects to start bringing back in July part of the oil production it had curtailed in Q2.
Although some of the production is coming back online, the nature of the shale wells, whose initial production rates drop by around half after the first year, means that production increases require constant drilling of new wells. Related: Halliburton Looks Beyond Shale As Fracking Remains Unprofitable
However, drilling activity has plunged, and the number of active oil rigs for the week to July 17 had plummeted to 180, compared to 779 active rigs this time last year, according to Baker Hughes data. The U.S. rig count saw its nineteenth straight week of declines last week.
Drastically reduced drilling activity likely means that U.S. oil production could take more than two years to return to the pre-crisis levels.
"Shale is not broke; shale is not gone; shale will come back," ConocoPhillips Chairman and CEO Ryan Lance told IHS Markit Vice Chairman Daniel Yergin for 'CERAWeek Conversations' last month.
"But I do think it comes back slower because there's going to be pressure on companies to confine their capital program, maybe not grow dramatically as they were before, because I don't think the access to capital in the investor community, at least in the public side of the business, is going to be as robust as it was over the last decade," Lance added.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More