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U.S. shale oil producers are reversing production cuts as prices recover from historic lows, underscoring shale’s ability to quickly adjust to pricing and posing a challenge to OPEC as it considers extending production curbs.
U.S. producers began cutting output in March as oil prices collapsed due to a supply glut and falling demand due to the COVID-19 pandemic. U.S. oil companies are forecast to pare their output by as much as 2 million barrels per day (bpd) this year, with half coming from shale fields, as prices tumbled below the cost of production.
But on Tuesday, shale producers Parsley Energy Inc and EOG Resources Inc disclosed plans to restore some or all of their output cuts. In North Dakota, state energy officials this week reduced by 7% an estimate of production shut-ins in the second-largest U.S. shale field.
The Organization of the Petroleum Exporting Countries (OPEC) and allies meet on Thursday to consider extending an agreement to cut a record 9.7 million bpd to offset the lost demand from the coronavirus outbreak.
Parsley plans to restore all of the 26,000 bpd it cut earlier this year and an EOG Resources executive told investors on Tuesday at an RBC Capital Markets conference it would reopen shuttered wells and add new ones in the second half of the year.
EOG, one of the largest U.S. shale producers which last year had more than 450,000 bpd of output, starting next month will open wells it had curtailed and “bring on wells that we’ve completed and not turned on yet,” said Kenneth Boedeker, EOG’s head of exploration and production.
OIL SPENDING REMAINS DEPRESSED
Analysts are easing estimates of overall U.S. production cuts, which have ranged up to 2 million bpd by December. Oil firms reduced planned spending on production this year by an average of a third, leading to output and job cuts across the energy sector.
Consultancy Rystad Energy estimates U.S. production will pare 1.3 million to 1.35 million bpd in June, down from the 1.65 million bpd cut it had initially expected.
“Many larger producers might restore significant part of curtailed production” in June, said Artem Abramov, Rystad’s head of shale research. Others, he said, are likely to wait as they “build more confidence in market fundamentals.”
Still, the resumption of some production is not likely to halt an overall decline in U.S. output this year, said oil traders and brokers. The U.S. record of nearly 13 million bpd in January is unlikely to be matched for two years, analysts said.
While producers recently have begun fielding calls from exporters for additional oil supplies, the new demand is modest and still rare, said a trader at a global oil merchant who could not be identified because he was not authorized to speak to the media.
“The ones who are proposing to go fully back are generally really small producers with a minimal impact on overall supply,” the person said.
NOT DRILLING NEW WELLS
U.S. crude futures on Tuesday were trading at about $36.50 a barrel, up $16 a barrel from a month ago. Prices for immediate delivery are trading at a discount to the next month CLc1-CLc2, a sign that traders expect more supply to return.
Still, the current price is about 41% below where oil started the year.
“We are not putting new capital to work,” Parsley Chief Executive Matt Gallagher told Reuters. The company’s reversal of production cuts does not mean it will drill new wells “as we evaluate market fundamentals.”
Phillip Gobe, chief executive of ProPetro Holding Corp , a services firm that fracks shale wells, told investors on Tuesday not to read too much into any pickup in fracking activity because pricing remains depressed.
“Activity could pick up,” said Gobe in a conference call, “but it may not be profitable activity, it may not be cost-effective activity.”
Source: Reuters
Valaris Limited announced new contracts awarded subsequent to issuing the Company’s most recent fleet status report on February 21, 2023. Three-year contract with Petrobras for drillship VALARIS DS-8. The rig will be reactivated for this contract. The total contract value is approximately $500 million, including a $30 million mobilization fee. 100-day contract with a TotalEnergies affiliate for drillship VALARIS DS-12. The contract is expected to commence in second quarter 2023. 70-day contract with Beach Energy offshore New Zealand for heavy duty modern jackup VALARIS 107. The contract is expected to commence in third quarter 2023. The total contract value is approximately $26 million. President and Chief Executive Officer Anton Dibowitz said, “We are particularly pleased to have secured the award for preservation stacked drillship VALARIS DS-8, for a contract that is expected to generate a meaningful return over the firm contract term, and we remain focused on exercising our operational leverage in a disciplined manner. This most recent award represents the sixth contract awarded to one of our high-quality stacked floaters since mid-2021, and speaks volumes about our demonstrated track record of project execution when reactivating rigs.” Dibowitz added, “Following the reactivation of VALARIS DS-17 and DS-8, we will have ten floaters working across the golden triangle, including four drillships in Brazil, a market where we expect to see continued growth over the next several years.” Updated Guidance As a result of the contract awarded to VALARIS DS-8, which will require the rig to be reactivated from preservation stack, we are updating our first quarter 2023 and full-year 2023 guidance provided on our fourth quarter 2022 conference call on February 21, 2023. First Quarter 2023 Contract drilling expense is expected to increase by approximately $5 million to $385 million to $395 million. Adjusted EBITDA is expected to decrease by approximately $5 million to negative $5 million to breakeven. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $25 million to $30 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Full-Year 2023 Revenues are anticipated to be $1.8 billion to $1.9 billion, unchanged from the guidance provided on our fourth quarter 2022 conference call. Contract drilling expense is expected to increase by approximately $60 million to $1.49 billion to $1.59 billion. Adjusted EBITDA is expected to decrease by approximately $60 million to $180 million to $220 million. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $280 million to $320 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Capital expenditures are expected to increase by $60 million to $320 million to $360 million. Source: Valaris Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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