Shale drillers promise no 2017 binges

NEW YORK: Shale oil companies are ready to play chicken with supply and demand again.

Roiled by a year that began with crude at a 12-year low and ended with a surprise Opec agreement boosting prices, US producers including Continental Resources Inc and Pioneer Natural Resources Co are promising not to overreact – or overspend.

The temptation will be strong: a recovery in prices has already spurred drilling activity in the US to the highest since January. If oil passes US$70 a barrel, the US could start pumping out an extra million barrels a day, offsetting much of the planned cut from the Organisation of Petroleum Exporting Countries (Opec), according to a Citigroup Inc analysis.

With President-elect Donald Trump promising to ease industry regulations and analysts predicting better earnings for 2017, shale drillers are gearing up for growth.

“There’s a real concern by industry that we could be in for another one of these price adjustments, if we get carried away with development,” Harold Hamm, chief executive officer of Oklahoma-based Continental, said in an interview in New York. “They’re going to be disciplined going forward.”

The US now produces 8.8 million barrels a day, about half from shale. West Texas Intermediate oil, a US benchmark, has averaged almost US$52 a barrel since Opec’s announced cut last month. A climb to US$60 could generate a 500,000 barrel surge in US production and US$70 would double that, Citigroup wrote in a report this month. WTI traded at US$53.81 at 12:32pm Singapore time yesterday.

While dozens of shale companies and oilfield servicers went bankrupt in the aftermath of the price collapse, investors have rewarded survivors who emerged leaner and more efficient. Hamm’s Continental, holder of the largest net acreage in North Dakota’s Bakken Shale region, has more than doubled in value this year. — Bloomberg