US Frackers Revive Once-Dead Shale Projects As Oil Approaches $100

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by Tyler Durden
Tuesday, Feb 22, 2022 - 07:07 PM

Last week, US shale oil producer Pioneer Natural Resources said they wouldn't increase production even if prices cross the $100 per barrel mark.

"There's no change for us," CEO Scott Sheffield told analysts on Thursday, adding "$100 oil, $150 oil, we're not going to change our growth rate."

Pioneer's peers, however, appear to have other plans according to the Wall Street Journal.

According to the Wall Street Journal, shale companies have been moving drilling rigs back into oil fields which were abandoned just a few short years ago - returning to places such as the Anadarko Basin of Oklahoma and the DJ Basin in Colorado.

Oil production in these marginal regions isn’t expected to move the needle in the global market, which is facing tight supplies, but it could help some oil producers who have lost money in past years. Output in the contiguous U.S. by year-end is expected to increase almost solely from the Permian Basin of West Texas and New Mexico, offset by declines elsewhere, according to energy consultant Wood Mackenzie.

Some of the largest shale companies told investors this past week they plan to remain disciplined on capital spending and limit production growth. But with oil hovering around $90 a barrel, near the highest levels in more than seven years, some peripheral drilling, particularly by smaller companies, is now becoming more feasible even in places like Kansas and Utah, where wells produce far less oil than prolific fields in Texas and New Mexico. The regional revivals show the economic ripple effects when prices surge and mark a turnaround for companies hard-hit by the pandemic. -WSJ

One such company, Charter Oak Production, is planning to revive a drilling site in the Anadarko Basin this month, and will contract a second, larger rig to work there until later this year in the hopes of doubling or tripling its output from around 1,000 barrels per day. According to founder Joe Brevetti, the clock is ticking until prices fall again.

"We have a limited window of opportunity," he said. "Our costs are obviously up right now, but I’d rather have the higher costs and sell the product at $90."

Brevetti waited out the pandemic-related destruction in oil-demand, severely curtailing drilling activity while storing as many as 60,000 barrels of oil in tanks that usually hold other fracking materials, instead of selling that oil at low prices.

In the DJ Basin in Colorado, the average number of active rigs has risen from four in 2020 to 15, while in the Powder River basin in Wyoming and Uinta Basin in Utah, the rig count has increased to nearly a dozen. All three sites require higher oil prices to turn a profit.

Meanwhile, Crescent Energy says it will buy assets in the Uinta Basin for $815 million in cash, and will operate two rigs there this year - contributing to Utah's largest oil production since late 2014 (though still less than 1% of national output). It's also worth noting that activity in the Anadarko basin remains well below 2018 levels, before companies ended operations around 2019 following disappointing well output.

Companies have started pumping more oil from regions that yield tiny wells by industry standards. Private oil producer Palomino Petroleum Inc. is now running as many as six drilling rigs this year in western Kansas, the largest fleet it has had there in about seven years. The wells it drills there typically start producing about 50 to 100 barrels a day. That oil is moved by truck to a refinery in central Kansas.

Klee Watchous, Palomino’s president, said oil prices climbing back to $90 a barrel has marked a sharp turnaround in the fortunes of both the company and the small towns near its operations. Mr. Watchous said his company is also planning to drill wells in Illinois this year, a state where rigs have rarely ventured recently. -WSJ

"After many years of fighting this low oil-price situation, it feels great," said Watchous. "The cycles of boom and bust have been part of the oil-and-gas industry for decades, and no one knows how long it will last."