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Global Energy Advisory – 10th August 2018

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U.S. shale producers are raising their capital spending, encouraged by price optimism amid returning sanctions against Iran. Prices are likely to strengthen further in the coming months as well, after a fresh round of sanctions against Russia that could see a suspension of Russian crude oil and oil product imports into the United States.

Investors may not be particularly happy with oil companies’ spending plans but they have less reason to be unhappy with West Texas Intermediate at $67 a barrel, and many, including Continental Resources’ Harold Hamm, expecting a further price rise as Iranian sanction begin to bite.

But shareholders must also be satisfied by the share buyback programs and higher dividends oil companies began paying out after prices started improving. With these higher shareholder returns, they are now in a better position to focus on production growth.

So what we’re seeing is capex plans being expanded by hundreds of millions of dollars, with ConocoPhillips boosting its capex for 2018 by $500 million to $6 billion and Continental is adding $400 million to its already approved budget, with $200 million slated to be invested in more rigs and well completions. Pioneer will add $450 million to its 2018 capex plan but the company noted that some of the additional spending will go towards covering higher cost.

This sheds light on the dark side of the oil industry recovery: Service providers are charging more for their services,…

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