SHALE OIL COMPANIES UP
BLOOMBERG - 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, U.S. 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 U.S. to the highest since January. If oil passes $70 a barrel, the U.S. could start pumping out an extra million barrels a day, offsetting much of the planned cut from the Organization of Petroleum Exporting Countries, 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 U.S. now produces 8.8 million barrels a day, about half from shale. West Texas Intermediate oil, a U.S. benchmark, has averaged almost $52 a barrel since OPEC's announced cut last month. A climb to $60 could generate a 500,000 barrel surge in U.S. production and $70 would double that, Citigroup wrote in a report this month. WTI traded at $53.81 at 12:32 p.m. Singapore time Thursday.
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. Hamm himself, who owns the majority of the company's shares, had the third-largest personal gain among billionaires in 2016.
A Bloomberg Intelligence index of 57 independent oil and gas drillers in North America has gained 72 percent this year, with all but 10 of the stocks posting an increase for the year. On average, members of the index are expected to lose $1.48 a share in 2016, according to analysts' estimates. That will improve to a 35-cent average loss next year. The five largest companies are expected to swing to a full-year profit in 2017 on a per-share basis.
Also buttressing cash flow, U.S. producers have been buying hedging contracts that lock in higher prices for 2017, giving them further financial flexibility to grow, Macquarie Research analysts Vikas Dwivedi and Walt Chancellor noted in a Dec. 12 report to clients.
The issue for the global industry now isn't whether U.S. drillers will expand their operations, but rather "how quickly does shale come on to tap those higher prices, and then how quickly they push them back down," said Peter Pulikkan, a Bloomberg Intelligence analyst in New York. "2017 is the year where you are going to see shale's reflexes tested."
Producers are waiting to see whether OPEC delivers on its promised cuts before increasing their own development budgets, according to Pulikkan. It may be the second quarter before enough market data is in to reach a conclusion, he said.
Pioneer Natural Resources can go from starting a well to producing oil for sale in three to four months, Chief Operating Officer Tim Dove told Bloomberg Television in a Dec. 13 interview. The Irving, Texas-based company was already planning to boost production by 15 percent and add rigs next year in West Texas' Permian shale basin. It's taking a wait-and-see approach on any further expansion, he said.
"We're going to stay on our trajectory regardless of what OPEC does," Dove said.
Expansion may be steady but slow, said John England, vice-chairman for U.S. energy at Deloitte LLP. He expects just a "modest increase" from shale drillers in 2017.
"We see 2017 as the slow road back," England said in a telephone interview. "Nobody wants to get overextended, nobody wants to get into the debt levels you've seen in the past."
In the meantime, another wild card for oil markets will hit Washington. Trump is considering a tariff on imports, CNN reported on Dec. 21, citing unidentified sources, and House Republicans have proposed a "border adjustment" that would tax imported goods but not exports, including oil and gas. Either move could spur U.S. production.
Adam Anderson, chief executive officer of oilfield equipment company Innovex Downhole Solutions Inc., remains skeptical he'll ever see business boom the way it did when almost 2,000 oil and gas rigs were drilling in 2014.
After years of turmoil, "clearly we're past the worst of it," Anderson said in an interview. "But it is not back, nor do I think it ever will get back, to the heights."
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Libya’s oil production increased steeply to the current level of 850,000 b/d from a low point in August 2016 of below 300,000 b/d. Production surpassed 1 million b/d in July.
- Revenue of $7.9 billion increased 6% sequentially - Pretax operating income of $1.1 billion increased 11% sequentially - GAAP EPS, including Cameron integration-related charges of $0.03 per share, was $0.39 - EPS, excluding Cameron integration-related charges, was $0.42 - Cash flow from operations was $1.9 billion; free cash flow was $1.1 billion
“The combination of GE Oil & Gas and Baker Hughes closed on July 3, and we are pleased with our progress during our first operating quarter. Despite the continuing challenging environment, we delivered solid orders growth and secured important wins from customers, advanced existing projects and enhanced our technology offerings in the quarter. We also achieved key integration milestones and made significant progress working as a combined company. I am now more convinced than ever that we combined the right companies at the right time,” said Lorenzo Simonelli, BHGE chairman and chief executive officer.
U.S. Rig Count is up 360 rigs from last year's count of 553, with oil rigs up 293, gas rigs up 69, and miscellaneous rigs down 2 to 2. Canada Rig Count is up 59 rigs from last year's count of 143, with oil rigs up 38 and gas rigs up 21.