The oil industry’s troubles in 2020 can be measured by various indicators, but in the United States, the number of drilling rigs may be the most reflective of everything.
Weekly data show that hundreds of U.S. oil companies from Texas to North Dakota are furiously drilling shale oil wells, and the extent of the damage to confidence is evident. When oil prices were severely hit by the epidemic, these oil companies slashed their expenditures and laid off a large number of drilling workers.
The result is that the number of drilling rigs has plummeted, hitting the lowest level in the 15-year history of shale oil. Although volumes have picked up since August, they are still well below levels at the beginning of 2020.
According to data released by Baker Hughes on Wednesday, the number of oil rigs drilled in the United States will be fixed at 267 in 2020 , the lowest for the same period since 2005, more than half of the 683 in March!
The situation next year is not expected to be much better, because oil prices are widely forecast to be trapped at US$40-50 per barrel, and oil companies will face the difficult decision of whether to start new drilling.
The drilling plunge reflects a major correction in the U.S. oil industry.
The United States, which has dominated the global energy market through the shale boom, is already a major oil exporter comparable to Saudi Arabia and Russia, but a sudden new crown epidemic forced American producers to cut Expenditure, surviving with a broken arm.
① Although domestic production in the United States remains stable, it is 16% lower than the peak level before the epidemic, or 2.1 million barrels per day. Unless oil prices rebound significantly, U.S. production is likely to remain at current levels.
IHS Markit, Rystad Energy, Enverus and the EIA all forecast that U.S. production could end 2020 at around 11 million barrels per day. In February, U.S. production exceeded 13 million barrels per day. By the end of the summer, it fell by 3.4 million barrels per day, which is equivalent to a drop in production of the United Arab Emirates.
The plunge in drilling also reflects that the U.S. oil and gas industry has experienced an extremely difficult year.
② Dozens of U.S. oil companies filed for bankruptcy in 2020, and tens of thousands of jobs disappeared.
Haynes & Boone’s report shows that 43 oil production companies went bankrupt from January to October this year. Industry giant Schlumberger has completely given up on fracturing operations in North America, a sign that the U.S. shale oil region may never return to its former glory.
③ Although drilling activities are slowly recovering now, this is partly because shale oil reserves are depleted faster than traditional oil wells, and additional fracturing is required just to maintain production levels. So that doesn’t mean U.S. production will grow again as a result.
In fact, U.S. oil company executives are still afraid of increasing investment in extraction because they are worried that the nightmare of oversupply may strike again at any time.
Parsley Energy CEO Matt Gallagher told analysts at a conference in August: “North American oil exploration companies are fighting for the balance of investment. Rather than fighting for market share. Supply in the global energy market is artificially constrained, and putting capital into it is like a trap that we jump into again and again.”
A week after Gallagher spoke those words, the U.S. rig count dropped to a 15-year low of 172 rigs, and soon after he agreed to sell Parsley to rival Pioneer Natural Resources.
④ Another reason for the rebound in drilling activity is that producers are worried that U.S. President-elect Biden may curb shale oil fracturing activities on federal lands after taking office.
Most notably in Texas. After a trough in August, Texas shale oil activity has seen its biggest rebound. Exploitation activity in the Permian Basin of West Texas and New Mexico has increased or remained stable for 15 consecutive weeks.
But at the same time, mining activity in North Dakota’s Bakken Basin (Bakken) and Colorado’s D-J Niobrara region has been slower to recover because they are more expensive and less profitable to extract. In other parts of the world, such as Latin America and Europe, spending is forecast to pick up more strongly.
⑤ The spending of U.S. oil companies has been almost halved this year. According to the Evercore ISI report, the spending of these companies will only increase slightly by 5% in 2021. And in the U.S., most of the new spending is expected to go toward supporting fracking rather than developing new wells.
What giants like Exxon Mobil and Chevron will do next year is still unknown. Both giants have cut spending by about a third this year, with the steepest cuts on U.S. shale oil.
⑥ Whether shareholders are willing to continue funding shale oil is still a question.
Before the epidemic,��The industry is already under heavy pressure from high debt, and shareholders are complaining. Deloitte said in June that shale oil companies had burned through approximately $342 billion in cash since 2010.
⑦ From a certain perspective, the nightmare of shale oil is also the gospel of OPEC. OPEC has barely regained its position as the dominant player in the global oil market.
Bill Thomas, CEO of EOG Energy, the largest independent shale oil producer by market value, said: “In the future, we believe that OPEC will definitely be a production regulator, and we don’t want OPEC to feel that they They are threatened and don’t want them to feel that they are supporting oil prices and we are taking market share.” CEOs of Pioneer Resources and Occidental Petroleum are cautious about the shale oil industry. Attitude means shale oil production may stagnate. Pioneer Resources CEO Scott Sheffield said: “I predict that there will be no growth in U.S. production in 2022 and 2023, and the possibility of U.S. shale oil growing again is very, very small.”
This is important for This is certainly good news for OPEC and its allies.
Oil prices may have to remain above $50 to prompt shale oil to grow again. If it can reach $60, shale oil may return strongly. Natasha Kaneva, a commodities analyst at JPMorgan Chase, said: “The most important thing is that OPEC+ does not need to be busy fighting for market share now. After six months of austerity, U.S. shale oil production will continue to be limited.”
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