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US shale oil output falls as drilling activity slumps

  • : Crude oil
  • 23/07/24

US shale oil output is expected to fall next month as drilling and completion activity slows and legacy output declines exceed new well production.

Oil production in the seven major shale formations covered by the EIA's monthly Drilling Productivity Report (DPR) is forecast to fall by 18,000 b/d in August — the first drop since December, when bad weather disrupted operations. DPR-7 output growth is expected to slow to just below 6,000 b/d this month as fewer new wells are completed, while legacy declines continue to rise. Output growth has slowed month on month since the start of this year, as drilling and completion activity in the shale sector slumped owing to rising costs, labour shortages and lower oil and gas prices.

US oil rig counts have fallen again, dropping by 15 since mid-June to 537 by mid-July — the lowest count since April 2022, according to upstream service firm Baker Hughes (see graph). Fewer new wells are being drilled and firms are drawing on their inventory of drilled-but-uncompleted (DUC) wells to help sustain output. Only 933 wells were drilled in June in the DPR-7 regions — 7pc down on the end of last year. But 957 new wells were completed as 24 DUC wells were also deployed to bring new production on line last month. And DPR-7 DUC wells are at their lowest in nine years (see graph).

The business activity index for the oil and gas sector in Texas, northern Louisiana and southern New Mexico stalled in the second quarter, according to the Dallas Fed's quarterly energy survey. Oil and natural production growth slowed as firms reported rising costs for a 10th consecutive quarter and oil service firms indicated worsening conditions. Around 71pc of oil and gas firms expect that input costs — excluding labour — will be higher at the end of 2023 than at the end of 2022. "Expenses for everything have increased dramatically," one respondent says. "I would drill if costs were not so high."

Diverging expectations

But the survey also reveals divergent expectations between large and small firms. Nearly half of larger firms producing 10,000 b/d or more expect drilling and completion costs to be lower at the end of this year than at the end of 2022, while two-thirds of smaller firms producing less than 10,000 b/d expect costs to be higher. Bigger firms typically lock in costs in advance, buying steel and other inputs ahead and agreeing term contracts with service companies, while smaller firms are more exposed to spot pricing. "Wells that are being completed today have been drilled a few months back under a higher service price environment, so things are, I think, softening," EOG Resources chief executive Ezra Yacob says.

Slowing activity in the sector means that new-well production no longer offsets legacy declines from existing wells, and output will inevitably go into reverse. Legacy oil declines in the DPR-7 regions are expected to rise again to 611,000 b/d (6.5pc of total output), but new-well production is dropping as fewer wells are completed (see graph). DPR-7 well completions were 11pc down in June, compared with the end of last year, and look unlikely to recover soon as firms are cutting back completions. The number of "frac spreads" — completion crews — active in the US remains on a downward trend, data from industry monitor Primary Vision show.

EIA forecasts of US lower-48 onshore oil production, which is driven by shale oil, show output falling slowly this summer from a peak of 10.45mn b/d in April and not recovering to that level before May next year. Overall output is expected to rise by 600,000 b/d year on year for 2022-23, but entry-to-exit growth this year is only 390,000 b/d.

DPR-7 shale oil production drivers

Well completions and legacy declines

Rigs & frac spreads

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24/11/07

US extends oil service firms' Venezuela waiver

US extends oil service firms' Venezuela waiver

Washington, 7 November (Argus) — The outgoing administration of US president Joe Biden extended authorization for oilfield services companies Halliburton, SLB, Baker Hughes and Weatherford to continue working in Venezuela until 9 May 2025. The waiver allows the service companies to pay their staff and maintain limited operations, but it prevents them from drilling new wells or otherwise contributing to state-owned PdV's production and exports. The Biden administration reimposed sanctions on Venezuela's oil sector in April, after a six-month reprieve. The sole exemption is a waiver for Chevron allowing it to import oil into the US from its joint venture with state-owned PdV. US crude imports from Venezuela averaged 212,000 b/d in January-August, US Energy Information Administration data show. Chevron's Venezuela output has stood at about 200,000 b/d. Neither president-elect Donald Trump nor his campaign addressed the Venezuela sanctions regime or indicated if they would change it. Republicans in Congress ahead of the election called for the Chevron exemption to be revoked. The Biden administration separately extended a prohibition for holders of $3.4bn in PdV 2020 bonds guaranteed by 50.1pc in US refiner Citgo's holding company to exercise their claim, this time until 7 March 2025. The PdV bondholders in theory hold a superior claim to Citgo Holding — a legal entity that directly owns Citgo and, in turn, is owned by Citgo parent company PdVH. A federal court in Delaware recently oversaw an auction of PdVH shares that yielded a $7.3bn bid from a company backed by investors including Elliott Investment Management. Legal wrangling over the bids and the distribution of auction proceeds is likely to keep Citgo ownership unresolved in the near term. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Mexican peso plummets on Trump win


24/11/06
24/11/06

Mexican peso plummets on Trump win

Mexico City, 6 November (Argus) — The Mexican peso fell sharply against the US dollar as markets priced in potential retaliation against Mexico following former president's Donald Trump's victory in the US presidential election. "A Republican Senate majority and potential House win raise the chances of Trump's radical reforms, which could hurt Mexico's economic dynamism," said a financial analyst from Mexican bank Monex in a note today. The peso initially dropped around 3pc to Ps20.71/$1 early today, hitting a two-year low before recovering to Ps20.20/$1 by midday. The peso may weaken further, as Mexico is vulnerable to tariff hikes amid strained relations over issues like immigration and the opioid crisis, according to a desk report from a major Mexican bank. Trump repeatedly threatened tariffs on Mexico during his presidential campaign, most recently pledging a 25pc tariff on all Mexican imports unless President Claudia Sheinbaum's administration launches a severe crackdown on Mexico's drug cartels, which ship fentanyl and other drugs across the border to the US. Recent constitutional amendments in Mexico, including judicial reforms and proposed eliminations of independent regulators, may also add downward pressure on the peso, according to the report. "The government's goal to direct private-sector involvement could limit market forces," it noted. Mexico's state-owned oil company Pemex typically offsets peso depreciation due to its dollar-denominated oil export revenues, which help cover increased import costs. "Pemex's exports and domestic sales are tied to international hydrocarbon prices, providing a natural hedge," the company stated in its most recent report. Still, analysts warn that Pemex's focus on domestic refining over crude exports could erode this hedge, leaving it more exposed to foreign exchange swings on USD-denominated debt. By Édgar Sígler Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop 29 finance talks need leadership after Trump win


24/11/06
24/11/06

Cop 29 finance talks need leadership after Trump win

Edinburgh, 6 November (Argus) — Donald Trump's US presidential election victory will likely affect finance negotiations during the UN Cop 29 climate summit starting next week, but the US can still play a role while other developed countries step up to the plate, according to observers. Key negotiations at Cop on a new finance goal for developing nations, the so-called NCQG, could be "severely undermined" by Trump's victory, as the prospect of Washington withdrawing from the Paris Agreement may discourage other countries from engaging with US officials, non-profit IISD's policy adviser Natalie Jones told Argus . Trump pulled the US out of the Paris Agreement during his last term in office, calling it "horrendously unfair", and he has signalled he will do so again. "This could potentially weaken ambitions" at Cop 29, but it is unlikely to derail negotiations, Jones said. Observers agree that the US can still play a role in talks on the new finance goal, a key topic at this year's summit. Parties to the Paris deal will seek to agree on a new finance goal for developing nations, following on from the current $100bn/yr target, which is broadly recognised as inadequate. "The Biden administration still has a critical window to support vulnerable nations' calls to mobilise climate finance and deliver a strong climate target," civil society organisation Oil Change International's US campaign manager Collin Rees told Argus . The Biden administration's delegation, which will still take part in Cop 29, will not change position at this stage, according to Jones. And the US could continue to show some leadership, she said, adding that Washington likely intends to release its 2035 Nationally Determined Contribution (NDC) early. Countries' new climate plans must be submitted to the UN climate body the UNFCCC by February 2025, but the US could release its NDC at Cop 29 before Trump takes power early next year, she said. "President Biden must do everything he can in the final weeks of his term to protect our climate and communities," including on fossil fuels, Rees said. The prospect of Trump pulling the US out of the Paris accord could cause initial anxiety at Cop 29, Climate Action Network executive director Tasneem Essop said. But "the world's majority recognises that climate action does not hinge on who is in power in the US". "As we saw before and will see again, other countries will step up if the US reneges on their responsibilities and stands back," Essop said. Trump's victory might also present the EU with an opportunity to strengthen its leadership among other developed countries, according to Jones. "It is really on the EU and other countries to step up now," she said. This is a view echoed by German Green lawmaker Michael Bloss, a member of the European Parliament's delegation at Cop 29. "Europe needs to become the adult in the room," Bloss told Argus . The EU cannot rely on the US anymore and must become a global climate leader to ensure success at Cop 29, he said. Meanwhile, Oil Change's Rees stressed that the NCQG is a collective goal. "Other major economies must now step forward to fill the gaps, much as they would have needed to in any scenario given how the US has long refused to pay its fair share," he said. By Caroline Varin and Dafydd ab Iago Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Iraq proposes doubling payment for KRG crude


24/11/06
24/11/06

Iraq proposes doubling payment for KRG crude

Dubai, 6 November (Argus) — Iraq's government has proposed doubling the amount it pays the Kurdistan Regional Government (KRG) for crude production and transportation costs, as it seeks a compromise aimed at resuming exports from the semi-autonomous northern region. The government on 5 November approved an amendment to the three-year budget passed in 2022, setting compensation at $16/bl. But this remains $10/bl below the KRG ministry of natural resources' calculation of production costs in contracts it signed with international oil companies (IOCs) operating in Iraqi Kurdistan. "The KRG is not yet on board with the new arrangement," a senior Iraqi source with knowledge of the matter told Argus . Another source, with knowledge of IOC thinking, described the move as "a positive development" and said companies are "waiting to see what the Iraqi parliament decides." Parliament must ratify the amendment. The amendment stipulates "production and transportation costs for each field will be estimated fairly by an internationally specialised consulting entity" to be selected mutually by Iraq's oil ministry and the KRG's ministry of natural resources within 60 days. "If no agreement is reached within this period, the Federal Council of Ministers will determine the consulting entity," the government said. Parliamentary finance committee member Narmin Maarouf said the decision is "an important step to resolve one of the outstanding issues between the Kurdistan region and Baghdad." Iraqi prime minister Mohammed Shia al-Sudani has been working on a middle ground agreement that would allow it to pay IOCs operating in Kurdistan in return for a compromise with the KRG and the IOCs over the recovery cost for oil produced in the region. In this case, the KRG has to hand over its crude oil production to state-owned marketing firm Somo. A senior Iraqi government official said told Argus the result of the US presidential election may shift things in Iraq, "but the decision is clear, the Iraqi government wants to solve the issue." Around 470,000 b/d of crude exports from Kurdistan have been absent from international markets since March 2023, when Turkey closed the pipeline linking oil fields in northern Iraq to the export terminals at Ceyhan. That followed an international tribunal ruling that said Ankara had breached a bilateral agreement with Baghdad by allowing KRG crude to be exported without the federal government's consent. Iraq's federal government is finding it difficult to strike a balance between repairing its rift with the KRG and complying with its Opec+ commitments. But the KRG "cannot immediately resume exporting around 400,000 b/d," the Iraqi source said. By Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Trump nears victory in US election: Update 3


24/11/06
24/11/06

Trump nears victory in US election: Update 3

Updates throughout with latest election results, market reaction Washington, 6 November (Argus) — Former president Donald Trump appears to be closing in on victory in the US election, after winning several key swing states. Trump, the Republican nominee, was declared the victor in Georgia and North Carolina shortly after midnight ET on election night, according to the Associated Press. Trump has also won the key state of Pennsylvania, several US networks said. Trump was leading vice president Kamala Harris in all four other key swing states — Wisconsin and Arizona, Michigan and Nevada — based on partial results as of 02:00 ET (07:00 GMT) on 6 November. The seven swing states will decide which candidate reaches the threshold of 270 electoral votes needed to win the election. Trump had secured 248 electoral votes as 02:00 ET, with Harris at 214. Victory in Pennsylvania, if confirmed, would give Trump 267 votes and all-but end Harris' chances of victory. The prospect of Trump's re-election sent Brent crude futures down by as much as 2.5pc to a low of $73.64/bl, largely reflecting gains in the US dollar. A strong dollar tends to weigh on prices of commodities by making purchases more expensive for buyers using other currencies. Trump has promised to pursue a radical shift for the US on policies related to energy, taxes, trade and foreign affairs — reversing many of the policies and legislation that Democrats have put in place under President Joe Biden. On energy policy, Trump said he wants oil and gas producers to "drill, baby, drill" to bring down domestic energy prices and to dismantle many of the regulations and climate policies put in place by Biden, which Trump dubbed the "Green New Scam". Trump said he would immediately lift a "pause" on licensing new LNG export terminals and restart oil development in Alaska's Arctic National Wildlife Refuge. Trump wants to impose a 20pc tariff on all foreign imports and even higher tariffs on China. The next president faces decisions on the future of US support for Ukraine and related restrictions on Russian energy exports, enforcing US sanctions against Iran and Venezuela and how to contain the growing threat of an Israel-Iran war and its potential impacts on oil flows from the Middle East. Republicans also took control of the US Senate for the first time in four years. In the US House of Representatives, too many races are undecided for major networks to project control. In 2025, the US Congress is poised for a major fight on tax policy because of the year-end expiration of an estimated $4 trillion in tax cuts. By Chris Knight, Haik Gugarats and Kevin Foster Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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