Shale Expansion Dominates Competition

U.S Shale oil drilling rig

Introduction…U.S. Shale drilling budgets increases ten times faster than the rise of international oil companies’ budgets. This as OPEC is meeting May 25th to decide to continue production cuts.

U.S. shale producers are taking advantage of the production cut that OPEC and 11 non-OPEC nations struck in mid-November.

The comparison…Drillers in North America plan a combined capital expenditure of US$84 billion this year, an increase of 32 percent compared to last year, according to Barclays analysts, quoted by Bloomberg.

By comparison, the budget programs for international projects are seen up just 3 percent in 2017, Barclays reckons. Among the five supermajors, it’s only Exxon that is planning higher capital spending this year, of US$22 billion, up by 16 percent from 2016. The other four are either keeping investment budgets flat, or as in Chevron’s case, are reducing the expenditure.

“The level of capital budget increases really surprised us,” Wood Mackenzie research analyst in Houston, Roy Martin, told Bloomberg in a phone interview.

“The specter of American supply is real,” he noted.

In summary…The U.S. shale spending plans and growing production highlight the difficult position in which OPEC is caught – while the cartel is cutting production and trying to talk oil prices up, the shale drillers are reaping profits from the most profitable plays (hey, Permian) and reinvesting them in increased capital programs to pump more.

Reference:  Tsvetana Paraskova, “U.S. Shale Spending Dwarfs Competition: Grows 10 Times Faster,” OilPrice.com, 11 May 2017