As oil nears $100 a barrel, U.S. drillers get busy in costly shale
basins
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[February 08, 2022] By
Liz Hampton
DENVER (Reuters) - As U.S. oil rises toward
$100 a barrel, producers in some high-cost shale basins are buying
properties and adding rigs and frack crews in places that fell silent
when prices crashed early in the pandemic two years ago.
Benchmark U.S. prices last week topped $93 a barrel, up around 65% in
the last 52 weeks and the highest since 2014. U.S. producers are
cranking up spending at double-digit rates as fuel demand has soared and
fears have waned that OPEC will again punish them by flooding the market
with crude that is cheaper to produce.
Some executives say current high prices and relatively low service costs
make production economics the best in years. Firms are buying U.S. oil,
pipeline and gas processing rivals in a bet that higher prices will more
than cover rising costs of labor and equipment.
"Drilling economics today are better than they’ve ever been since the
shale revolution started," said Chris Wright, chief executive officer of
Liberty Oilfield Services. Closely held companies, in particular, are
accelerating output, he said.
New activity is stirring in secondary oilfields like Colorado's DJ
Basin, Wyoming's Powder River, Louisiana's Haynesville and North
Dakota's Bakken shale, which last year lost its spot as the second
largest U.S. oil producing region.
![](http://archives.lincolndailynews.com/2022/Feb/08/images/ads/current/ldn_sda_062409.png)
(For a graphic of oil production in secondary basins, click here:
https://graphics.reuters.com/USA-OIL/PRODUCTION/lgvdwxxeopo)
ACQUISITIONS SPUR OUTPUT
Spending budgets among U.S. independent producers are up 13% over a year
ago, according to analysts at Cowen. Among secondary fields, the natural
gas-rich Haynesville is among the only to fully recover output from the
2020 oil-price crash. Other shale fields, including the second-largest
producing oilfield, are adding to holdings and rigs.
"When you look at the oil prices in the Bakken, the prompt price is
close to $90 a barrel," said Bob Phillips, chief executive of energy
pipeline company Crestwood Equity Partners. "That doesn't happen very
often."
Last week, Crestwood completed a $1.8 billion deal to purchase Oasis
Midstream Partners' oil, gas and gas-processing assets in North Dakota
and Texas as part of a plan to become a top-three midstream operator in
the Bakken, Powder River and Permian shale fields.
Shale dealmaking that leads to more output could accelerate this year,
said Andrew Dittmar, who specializes in merger and acquisitions for
energy tech firm Enverus.
"Most of the selling private companies are ones that bring inventory as
well as production to the table," he said.
In Wyoming's Powder River oilfield, Continental Resources has made
several acquisitions since last year, the latest from Chesapeake Energy.
That purchase could revive the area's output, said Crestwood's Phillips.
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![](../images/020822PIX/busine47.jpg)
Oil rigs in a storage facility wait to be transported to the oil
field in Midland, Texas U.S. August 22, 2018. Picture taken August
22, 2018. REUTERS/Nick Oxford/File Photo
![](http://archives.lincolndailynews.com/2022/Feb/08/images/ads/current/debbiesfloral_lda_VALENTINES_2020.png)
Continental is scheduled to release its fourth-quarter results next week and has
not yet highlighted its 2022 budget or plan, a spokesperson said.
PRICES BENEFIT ALL
Ben Dell, managing partner at energy investor Kimmeridge Management and interim
CEO at Colorado's Civitas Resources, said every basin is enjoying an uplift from
higher oil and gas prices.
"The DJ has been particularly profitable," he said. In fact, Dell thinks the
prices may stir too much production, leading to oversupply.
In the Haynesville shale in East Texas and Louisiana, natural gas production is
forecast to hit a record 14.1 billion cubic feet per day this month, according
to U.S. government data.
Output gains are happening so fast production forecasts in some areas have
proven too low. Data and analysis firm East Daley Capital had estimated
Haynesville output would rise 12% this year based on 37 active rigs.
There are 42 now drilling, five more than it expected for the year. "There is
further upside to our current forecast," said Rob Wilson, a vice president at
East Daley.
ROOM TO RUN
Still, outside of Haynesville and the Permian, oilfields lag their peak
production. Bakken producer Hess Corp. aims to increase its overall production
by 12% to 15% this year, driven by output in the Bakken and Guyana. Chevron
plans to boost its Permian shale output 10% and Exxon said it could deliver 25%
more oil and gas from its Permian holdings.
In the Bakken, oil output is around 1.2 million barrels per day (bpd), below its
1.52 million bpd late 2019 peak. In the Eagle Ford shale of South Texas, oil is
averaging 1.1 million bpd, off the peak 1.7 million bpd in early 2015.
U.S. producers have been adding three rigs per week, but they would need to add
11 rigs per week to hold production at current levels, according to Mizuho
analysts.
![](http://archives.lincolndailynews.com/2022/Feb/08/images/ads/current/humanesociety_sda022411.png)
Ron Ness, head of trade group North Dakota Petroleum Council, said supply chain
challenges could limit production gains this year, as could investors demanding
higher returns.
"Unless $100 plus oil changes the investment mindset toward growth, I'm not sure
we will see 1.5 million barrels per day again" in the Bakken, he said.
(Reporting by Liz Hampton; Editing by David Gregorio)
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