Rising US shale oil production undermining Opec

FINANCIERS keep pouring cash into the shale oil sector, providing producers with a path to keep US output rising through the middle of the next decade.

The US is on track to deliver up to 80 percent of the world’s oil production gains through 2025, the International Energy Agency estimates – increases fuelled in part by easy access to capital.

Rising US production is undermining Opec’s attempts to curb global supply and boost prices, forcing the oil cartel to continue restraining output through the end of 2018.

Hedge funds and private equity firms have given producers a range of new and traditional financial levers they can pull as needed to keep shale rigs drilling, according to interviews with more than a dozen financiers, advisers and executives. The money continues to flow despite rising pressure from some investors for drillers to prioritise better profit margins over expanded production.

Producers holding land in prime fields with oil trapped in shale rock are having little trouble financing their fracking projects, said Buddy Clark, co-chairman of the energy practice group at Haynes Boone law firm in Houston.

“If you’ve got the rocks, you can get the money,” he said.

The IEA predicts US shale oil output, now about 6.17 million barrels per day (bpd), will rise another 8 million bpd by 2025. That would turn the world’s largest oil-consuming nation into a net exporter of oil. The US already is a net exporter of natural gas.

Through the third quarter of this year, private equity firms have put $20.26 billion into energy-related deals, 36 percent more than all of last year, according to financial data provider Preqin. Initial stock offerings for US-listed oil and gas firms raised $2.93 billion this year, up from $1.52 billion in 2016.

Another way to finance drilling – production hedging, or contracts producers use to lock in prices on future output – is also on the rise this year. Hedging acts as insurance against price drops, letting producers drill with more certainty they can earn a profit.

Forty mid-size producers tracked by researcher PetroNerds LLC hedged 45 percent of their production in the third quarter, up from 36.5 percent a year earlier. Those same companies boosted capital spending by nearly two-thirds this year.

In response to investor pressure for better profits, producers are touting efficiencies from newer well designs and their efforts to shed less productive shale acreage as evidence that they can lift returns and output at the same time. – Reuters