An unexpected surge in US crude output last year is unlikely to be repeated in 2024, offering some relief to Opec's ailing efforts to prop up oil prices.
While a lot of the increased activity in the shale patch last year was driven by private operators, a 20pc decline in the US rig count will eventually catch up even as firms become more efficient by targeting longer lateral wells and speeding up drilling times. Fewer hydraulic fracturing (frac) crews are available and companies further ran down their stock of drilled but uncompleted wells in 2023. Capital discipline remains the order of the day for publicly listed independents as the industry continues to improve balance sheets.
"Bringing on a lot of production last year, you've got a steeper decline to offset," EOG Resources president Billy Helms says. "That tells you that US production is not going to be able to continue to grow at the pace that it did last year." In fact, overall US output growth could come in at less than half the 900,000 b/d increase seen at the end of 2023 compared with the previous year, he predicts.
Moreover, spending by oil and gas producers in North America is poised to slow after outpacing international rivals in recent years. That translates into an estimated 1pc drop in spending by the region's upstream industry to about $141bn following robust growth of 22pc last year, according to UK bank Barclays' annual E&P spending survey. Despite oil field cost deflation — from pipe casing and proppant to diesel and chemicals — spending "looks flat to slightly down as service pricing has remained relatively stable", Barclays says.
A forecast from investment management firm Evercore ISI suggests North America spending will rise by 2pc to $115bn this year, down from growth of 19pc in 2023. "With declining well productivity and increasingly challenging geology limiting growth, production growth from the US shales has likely peaked," Evercore says. It sees firms limiting spending in favour of returning cash to shareholders.
Given the significant oil field service cost inflation seen in 2022, a lot of drilling inventory is not particularly economic at current oil prices, financial services firm Pickering Energy Partners director Robert Mills says. "So one of two things has to happen if you want to see a meaningful response in a lot of the shales, which is either oil field service pricing needs to come down or oil prices have to go up," he says. "If neither of those things happen, it's entirely practical that we see a decline out of the shales."
Acquire assets, cut debt
In a closely-watched energy survey carried out by the Federal Reserve Bank of Dallas last month, oil output increased at a sharply slower pace in the fourth quarter compared with the previous three months. Executives from large exploration and production companies said their main priorities for 2024 were to acquire assets, followed by debt reduction. In contrast, boosting or maintaining output were the top goals for small firms. Producers were classified as large if they pumped at least 10,000 b/d. Such firms account for over 80pc of overall US output.
And a recent wave of consolidation in the shale patch could rein in further output growth, as firms look to extend their inventory of untapped acreage into the future rather than boost production from the start. Deal-making in the sector exploded in October with ExxonMobil pouncing on Pioneer Natural Resources for $59.5bn and then Chevron snapping up Hess for $53bn. Acquisitions have continued into the new year with US independent producer APA agreeing to buy Callon Petroleum for $4.5bn to expand its Permian footprint. Past deals have seen a slowdown in activity, although the majors have touted technology improvements that could improve resource recovery from their newly-acquired assets.
