Oil industry’s recovery could be picking up
Big oil companies will head back to sea this year with a slate of new projects, following U.S. drillers already pouring more cash into shale fields.
Big oil companies will head back to sea this year with a slate of new projects, following U.S. drillers already pouring more cash into shale fields and signalling a pickup in the nascent oil industry recovery, analysts said.
Two recent reports detail the improved outlook for investment by energy companies as oil prices appear poised to continue their slow climb in 2017. On Wednesday, the energy research firm Wood Mackenzie said major oil companies would probably approve 20 large projects this year in places like Brazil, Guyana, the Gulf of Mexico, Mozambique, Norway and Vietnam. That’s more than double the number of sanctioned projects last year, Wood Mackenzie said.
That forecast follows a report by the global financial services firm Barclays that large U.S. shale drillers could increase spending on exploration and production in North America by as much as 58 percent this year, after cutting it nearly
40 percent in 2016.
Across the globe, oil spending should increase 7 percent, after back-toback declines of 26 percent in 2015 and 23 percent last year, according to the Barclays survey.
“The U.S. is the one leading the world out of the downturn,” said Malcolm Dickson, a Scotland-based analyst at Wood Mackenzie. Outside of the United States, he said, “no one is going guns-blazing at this stage. It’s still cautious, but there is optimism there as well.”
In the wake of OPEC’s oil production cut, rising oil prices have given Western oil companies the financial cover to launch smaller, more efficient deep-water projects, and U.S. shale drillers the confidence to increase oil field spending, which eventually could bring several thousand jobs back to the Texas oil industry. In Texas, the oil industry has made small but steady gains in employment since September as drillers dispatched scores of rigs to U.S. oil fields.
A sustained recovery in crude prices could accelerate hiring as drillers rent more equipment and bring in more rig crews. U.S. oil prices rose $1.43 to $52.25 a barrel on Wednesday.
“We’re on the cusp of, and probably already have, turned the corner from industry job losses to additions,” said Karr Ingham, a Texas economist who studies the oil industry. “We’ve brought just a handful of jobs back so far, but it’s an important milestone.”
If OPEC follows through with promised oil production cuts and crude prices keep hovering around $55 a barrel, the Texas oil industry could bring several thousand jobs back to the oil patch, Ingham said. Still, he said, the state is unlikely to regain all of the 100,000 jobs it lost in the two-year bust. That figure is roughly a third of the oil production jobs across Texas.
In the U.S. shale patch, Wood Mackenzie expects producers to increase spending 23 percent to $61 billion this year, the first annual spending increase since crude began to crash in 2014.
That could bring another 240 land drilling rigs to the market and lift oil production by half a million barrels a day by the end of the year, compared to the end of last year, Wood Mackenzie forecasts. A lot of the action is expected to take place in West Texas’ Permian Basin, where companies spent $20 billion to acquire land and smaller firms that held it.
Shale drillers have become more efficient since the oil bust began, reducing break-even prices for oil fields by 25 percent from $65 a barrel to $49 a barrel, on average.
“Even though cost inflation looms, there’s still running room for more efficiencies,” said Jeanie Harrison, an analyst at Wood Mackenzie. In the Wolfcamp Shale in West Texas, for example, the firm believes the time it takes to drill a well there could be reduced by another 20 to 30 percent, she said.
The 20 major projects Wood Mackenzie believes will get approved this year have a combined 10 billion barrels of oil in reserves. Still, that’s just half of the annual average number of large projects that were launched each year from 2010 to 2014, when the industry began a string of expensive so-called megaprojects.
Still, as oil prices rise, drillers could face investor pressure to begin planning how they’ll churn out oil in the future, after a two-year bust that whittled away at oil production rates and reserves.
“You’ve got to keep investing just to stand still,” said Jamie Webster, a fellow at the Center on Global Energy Policy at Columbia University. “The constraint is how good they feel about the market, and do they feel ready to pull the trigger.”