HOUSTON/NEW YORK (Reuters) – A reopening of some major economies locked down due to the coronavirus has lifted global oil prices and encouraged U.S. shale producers to return at least a third of the 2 million barrels per day (bpd) curtailed since April.
FILE PHOTO: Lease Operator Jeremy Jay walks through an oil production facility owned by Parsley Energy in the Permian Basin near Midland, Texas U.S. August 23, 2018. REUTERS/Nick Oxford/File Photo
But that bump in output is unlikely to be sustained as shale wells lose up to half their initial output after the first year, and require constant drilling to maintain and increase production.
With most new drilling halted and OPEC relaxing curbs that have underpinned the oil-price recovery, shale output will slide again in autumn, said oil executives and analysts.
Shale output falls off faster than at conventional oil wells, a factor that will lead to output declining by September.
Average U.S. daily oil output will fall below 2019’s record 12.2 million barrels per day (bpd) for the next two to three years, analysts said.
The decline means further economic damage from an industry that contributed nearly 1 percentage point to U.S. GDP early last decade. U.S. pipeline and oil export-terminal projects have been delayed or canceled as shale production forecasts have been cut.
“You shut down like this, reduce activity like this, and it is going to be felt for a while,” David Dell’Osso, chief operating officer of shale producer Parsley Energy (PE.N) said in an interview.
Parsley Energy’s plans mirror that of many shale rivals that have begun reopening existing wells but tightly restricting new activity. It had planned to operate 15 drilling rigs this year, but halted work in the spring as oil demand shrank on pandemic-related business closings.
This month, the company restarted drilling with two rigs, not enough to maintain existing production levels. Keeping output flat would take four to five rigs, which it may edge toward later this year, Dell’Osso said.
Diamondback Energy (FANG.O), one of the top U.S. shale producers, reopened most of its curtailed wells this month. It expects to pump about 180,000 bpd this year, down from 188,000 bpd last year. The reason: its rig count fell from 20 at the end of March to just seven by mid July, and is expected to be six by the end of the month.
Much of the shale production curtailments came from shale wells that were choked back but not shut-in completely, several shale company executives said.
The Organization of the Petroleum Exporting Countries and its allies’ decision to return 2 million bpd to global markets beginning next month will likely keep a lid on prices and leave less room for shale. The group known as OPEC+ agreed to production cuts of 7.7 million bpd through December.
However, OPEC+ cautioned that a second wave of COVID-19 infections could halt its plan to further ease constraints next year, officials said. The cuts since May have more than doubled benchmark Brent crude LCOc1 to about $44 a barrel, from…