Oil Companies Shifted to Richest Targets After Coronavirus


The price of oil needs to rise significantly before big American shale producers can ramp up their production numbers.

The Permian Basin oil field is becoming the central spot of the American shale-drilling industry after coronavirus, according to The Wall Street Journal.

Consulting firms Rystad Energy and Wood Mackenzie estimated that the Permian Basin will resume by next year and continue through 2030.

The firms said that South Texas’s Eagle Ford region, until 2024, will not return to its average 2019 shale-oil output and will decline after that.

The Bakken region of North Dakota, according to Rystad, will not return to its last year’s average until 2026.

Kelcy Warren, the chief executive of pipeline company Energy Transfer LP, noted that “the Bakken was well on its way to being a two-million-barrel-a-day oil field.”

Compared to its 1.5 million barrels last fall, the Bakken’s daily oil production is expected to fall to 1.1 million barrels, according to the Energy Information Administration.

The Bakken’s major producers, including Whiting Petroleum Corp. (which filed for bankruptcy), Oasis Petroleum Corp., and Continental Resources Inc., have been the hardest hit in the coronavirus crash and is likely to hinder the region’s rebound.

Companies in the Permian area, including Exxon Mobil Corp., Chevron Corp., and EOG Resources Inc., have announced to shift resources to the region and to increase their daily oil production.

EOG said that the firm remains its output in the Eagle Ford. “Our Eagle Ford returns are competitive with the Delaware Basin’s, primarily because we have lowered our Eagle Ford well costs by half since 2014,” said Creighton Welch, the firm’s spokesman.

Compared to the 1.4 million barrels last fall, the EIA estimates the Eagle Ford’s daily output will drop to 1.17 million.

“There will be more financial discipline, and companies will clean up their balance sheets before they develop new production through drilling,” said Martin Thalken, the former chief executive of Eagle Ford operator Protégé Energy III.

"My firm found that at a price of $50 a barrel, the top quartile of drilling locations in the Delaware Basin generated a 40% internal rate of return, a sustainable threshold for investors. The first and second tiers of Bakken spots matched that rate at $55 a barrel, while the top quartile of the Eagle Ford would generate sustainable returns at $60 a barrel", said Tom Loughrey, president of data analytics firm Friezo Loughrey Oil Well Partners LLC

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Economics, Finance and Investing