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Drillers poised to spend more in 2017 as confidence grows

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Written by Collin Eaton

Click HERE to Read the Article by the Publisher.


Research group Wood Mackenzie thinks it’s a pretty sure bet that oil companies will increase U.S. spending by at least $10 billion next year, likely breaking a gloomy two-year stretch of deep cuts.

The question now is whether the oil market’s optimism will hold while drillers get into budget-planning season over the next few months. If oil prices keep rising, a spending increase of $20 billion or $30 billion next year isn’t unthinkable, said R.T. Dukes, an analyst at Wood Mackenzie in Houston.

The firm estimates U.S. energy companies spent between $40 billion and $50 billion developing onshore oil fields this year. As drilling activity accelerates in response to rising oil prices, “it looks like capital expenditures will grow by 5 to 10 percent very easily in 2017,” Dukes said. “If oil prices approach $60 a barrel next year, that increase will inflate considerably.”

Even a small boost to oil company budgets would mark a major turning point for the producers that cut spending in the U.S. by half over the past two years – a larger percentage than in the tumultuous mid-1980s oil bust. Around the world, drillers have delayed $1 trillion in exploration and production projects.

On Monday, the Energy Information Administration reported these shale plays put out 30,000 fewer barrels each day in November, bringing their combined output to 4.43 million barrels a day. That’s the gentlest decline since the oil production numbers began falling in May 2015. And it’s well below the average drop of 110,000 barrels a day from December to August.

Société Générale, the French financial services company, forecasts that U.S. crude production, including from fields outside shale plays, will hit bottom in the second quarter of next year.

Oil companies and their equipment suppliers, meanwhile, are waiting to see whether the Organization of the Petroleum Exporting Countries can actually seal the deal it proposed last month in Algiers. At the OPEC meeting, the Saudi-led cartel signaled it would resume its role trying to manage global oil supply, a strategy change that marks a turning point for oil markets. Saudi Arabia and its Persian Gulf allies spent two years pumping oil and waiting for low prices to curb high-cost oil production in the United States and elsewhere.

Michael Wittner, an oil market analyst at Société Générale, said that reversal is likely more important than whether an OPEC deal to freeze output is made final at the end of November, OPEC’s self-imposed deadline for ironing out the details of the agreement.

“They’re trying hard to make a deal.” Wittner said. “If you’re a producer or a service company, you want it to happen.”


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Written by Collin Eaton

Click HERE to Read the Article by the Publisher.

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