Us shale producers have been exemplary over the past year, though not by choice, but by the pandemic and shareholder demands. After years of expecting a bonanza, shale shareholders are finally holding firm and demanding higher returns.
While US shale oil is battle-hardened to price shocks, the pandemic has had a devastating impact on demand for crude. On top of that, the big publicly traded shale producers have a lot of disgruntled shareholders to contend with. They responded by cutting expenses, cutting production and focusing on generating cash flow.
Us shale producers have been able to cope with this double bind in large part thanks to the help of Opec plus. Opec + cut its total production by 7.7 million b/d, an unprecedented cut, with some non-OPEC producers taking some of the blame.
Oil prices have rebounded as demand has gradually recovered. The focus shifts to U.S. shale oil, as investors look for drillers to start pumping significantly more. So far, US shale companies have held back, but not for long.
The Financial Times reported this week that US oil production will increase by 800,000 barrels a day next year. The report also noted that with U.S. oil prices currently around $76 / BBL, most shale producers will be very profitable. Interestingly, private independent drillers will take the lead this time, according to ANALYSTS at IHS Markit.
This is not surprising. Disgruntled shareholders were a hot topic in the shale oil industry long before the outbreak. For years, shale oil companies burned through cash to boost production in an effort to make the U.S. the world’s largest oil producer. That makes no sense to shareholders who have bought shares in Pioneer Natural Resources, Devon Energy and Continental Resources. They buy shares in these and other public companies in order to collect dividends.
So shareholder discontent is growing when dividends fall short of expectations. At the same time, the buzz about the energy transition has raised concerns that shale oil is a riskier bet in a changing energy world. As a result, listed shale drillers have no choice but to begin deliveries.
Some large shale oil producers have been raising dividends and increasing share buybacks to retain shareholders, while also taking aggressive steps to reduce debt burdens — a major source of concern for shale investors, foreign media reported.
Although publicly traded shale drillers have been courting shareholders for some time, they are still likely to face a backlash even if they start drilling more now. However, as demand recovers and inventories of drilled but uncompleted Wells dwindle, shale drillers must ramp up drilling and spending as quickly as possible to maintain current production levels.
Small private drilling companies also struggled during the pandemic, and now that that’s behind them, they can ramp up production as much as they want because they don’t have to report to shareholders and just care about the market. As long as there is enough demand to drive prices to profitable levels, these companies will not hesitate to pump more oil. In fact, the outlook for oil demand is indeed quite positive.
There is little doubt that private shale production will account for more than half of the expected growth in US crude oil production next year, according to Raoul LeBlanc of IHS Markit. He said:
“Private companies don’t agree with capital constraints. For them, this is their chance, and it may be their last and best chance.”
In January, when oil prices rebounded, with WTI crude trading around $50, an analyst at Wood Mac called it a decoy — predicting that the rebound would put US shale producers back into growth mode and put pressure on prices. But that didn’t happen because these big companies were subject to capital constraints. Small producers, however, are much more flexible and do not need to please shareholders. Before long, they could be an important driver of the downward price of oil.
With crude prices around $50, many shale producers are profitable. If the price is above $70, the vast majority of shale oil will be profitable. Perhaps no one would accuse private independent companies of seizing the opportunity to monetise their oil assets, and talk of the end of the oil era is more of a vision than a prediction.
Reprint indicated source：Shine Trader Limited Live information