Frackers say oil production is slowing in shale

Despite a long streak of strong earnings, shale companies are slowing down their activity in the oil fields, keeping U.S. oil production roughly steady and offering little relief to strained global markets.

What was expected to be a banner year for U.S. oil production failed to materialize due to rising inflation-related costs, supply chain grumbling and disappointing well performance for some companies banded together to limit domestic productionexecutives and analysts said.

Global oil prices averaged about $100 a barrel in the third quarter, according to

Bank of Nova Scotia,

BNS 3.56%

and in recent years such prices have caused an increase in shale production. This time companies like

ConocoPhillips,

COP -1.12%

Pioneer Natural Resources Co.

PXD -0.23%

and

Devon Energy corp.

DVN 1.06%

are focused on profits instead of drilling and say there are limits to growth.

ConocoPhillips on Thursday reported a profit of $4.5 billion, nearly double the same period last year. Pioneer recently said it earned about $2 billion while

Exxon Mobil corp.

XOM 1.09%

reported a record profit of almost $20 billion and

Chevron corp.

CVX 1.26%

said it posted its second-biggest quarterly profit of $11.2 billion.

Many companies simultaneously cut their oil production forecasts as they reported strong earnings.

Pioneer said its wells in the Permian Basin of West Texas and New Mexico — the most active U.S. oil field — produced less oil this year than expected and that it was reallocating its portfolio to generate higher returns, starting with 2023. The company produced an average of 352,421 barrels of oil per day in the third quarter, down slightly from the previous quarter, it said.

ConocoPhillips, along with other producers such as Pioneer Natural Resources and Devon Energy, are focused on profits instead of drilling.


picture:

Yereth Rosen/REUTERS

ConocoPhillips previously said total U.S. oil production growth could rise by 900,000 barrels per day this year. But spokesman Dennis Nuss said U.S. oil production growth was lower than the company initially expected this year because of supply chain difficulties and labor shortages.

“Rapidly rising costs combined with extremely tight supply are limiting the rate of production growth across the industry,” said Ryan Lance, CEO of ConocoPhillips.

America’s shale boom which has upset global oil hegemony, is losing steam just as global markets need once-fast-moving producers to pump more to cope with recovering demand. The The Biden administration called for the drilling to pick up their sluggish pace, help alleviate high pump prices, and invest their earnings in growth rather than increasing shareholder dividends and buybacks.

High forecasts by the federal government and others for steady growth in U.S. oil production in 2022 are proving overly optimistic, and doubts are emerging about how many barrels of shale oil drilling can add next year.

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In the neighboring US, oil production through August rose just 3% from December, by 288,000 barrels a day to 9.77 million, according to the Energy Information Administration. It previously expected total U.S. oil production – including Alaska and the Gulf of Mexico – to reach 12.64 million by December, up more than 1 million barrels a day from the same month last year. It has since cut its forecast by almost 500,000 barrels per day.

Even Chevron and

Exxon,

XOM 1.09%

the biggest US oil companies, which enjoy scale and logistics advantages, have hit the low side of their shale production targets.

Exxon recently said Permian oil and gas production is expected to grow about 20% from last year’s levels, down from an initial target of 25% growth. He attributed the recalibration to weather, facility delays and schedule adjustments. Chevron said its Permian production would hit the lower end of its target range for the year, about 700,000 barrels a day, as production declines at a slower pace.

Growth forecasts may fall further because many drillers have been relying on wells they previously drilled but left offline for future production, so-called drilled but incomplete wells, or DUCs. The EIA said companies used most of their best DUCs after using the wells to save money on drilling as the pandemic sent oil prices into a historic slump. That trend, combined with the Permian pipeline bottleneck, is expected to further limit U.S. oil production growth, the EIA said.

Another key issue for shale companies is how much oil wells are producing in the Delaware Basin, the western half of the Permian, where fracking has hit hard. As the region matures, well performance there predictably deteriorates, said Tom Loughry, president of oil analysis firm FLOW Partners LLC.

“We have roughly 10 years of high-quality drilling inventory in the Permian, and less if we grow faster,” Mr. Loughry said. “It will mean that these larger companies will not grow.”

Write to Benoit Morin at [email protected] and Colin Eaton c [email protected]

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