Is a Shale Re-Boom on the Cards?

Is a Shale Re-Boom on the Cards?
Rigzone's regular energy prognosticators look at the prospect of a shale 're-boom', geopolitical events, a cold spell in the U.S. and more.

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author)

In this week’s preview of what to watch in oil and gas markets, Rigzone’s regular energy prognosticators look at the prospect of a shale ‘re-boom’, geopolitical events, a cold spell in the U.S. and more. Read on below to find out the specifics.

Rigzone: What developments/trends will you be on the lookout for this week?

Frederick J. Lawrence, Conference Speaker and ex-Independent Petroleum Association of America (IPAA) Chief Economist: This week I will be watching important events on the geopolitical side that might inordinately impact the market balance of the energy matrix. The first and most important will be a look at signs of escalation regarding further Russian incursions into Ukraine. There have been some notable troop build-ups and tactical movements recently that point to heightened state of preparation. As well, we have seen increased U.S. troops recently sent to NATO countries on the strategic periphery. Obviously, this flashpoint has the largest potential impact on commodities markets and particularly, natural gas, oil and wheat. Second, we will watch the continued progress of U.S.-Iran negotiations based on the recent restoration of the sanctions waiver and resumed nuclear talks. Expectations are rather modest at this juncture but any significant progress could lead to the addition of one million barrels per day of Iran’s oil on the market, not counting current sales on the black market. This oil is consequential at a time when OPEC plus is struggling to make up their 400,000 barrel per day additions to the market. Additionally, we are keeping an eye on UAE and any continued missile attack on this important region from the Houthi in Yemen as there have been three attacks recently.

Recent earnings announcements in the U.S. have alluded to the prospect of a shale ‘re-boom’ so we will be watching rig count and production carefully as it appears that both majors and private independents are raising CAPEX or more opportunistically raising production to take full advantage of oil prices nearing $100 per barrel. Psychologically, this is an important level for both producers and consumers and we need to stay focused on eventual demand destruction that may result with continued price appreciation. For natural gas, we are looking at the endeavor of the Allies to round up as much LNG surge supply as possible to help a beleaguered Europe in case of Russian invasion. U.S. LNG will play a heightened role as the fuel is becoming less continental and more international every year with the U.S. playing the lead actor, for now. We note that associated gas production in the U.S. will rise with any anticipated shale re-boom and, of course, the Permian factors largely in this important contribution. Based on recent earnings, we see the Permian becoming even more important to large U.S. producers as some of the earlier plays (Bakken, Eagle Ford, etc.) become more mature and less active in regard to future growth.

Jon Donnel, Managing Director, B. Riley Advisory Services: Oil prices were in the red on Monday as discussions between U.S. and Iranian envoys appear to be progressing towards an agreement that would allow for Iranian crude supply to enter the market - legally. Still, front-month prices remain above $90 per barrel, near seven-year highs as cold weather in Europe and the Northeast has supported short-term demand. With this backdrop, there will be incentives for operators to increase production, but so far the largest U.S. publicly traded E&Ps have stuck to CAPEX guidance, continuing a theme of capital discipline that has persisted for the past three years. Supply and demand fundamentals are presenting companies with an option to increase spending and grow production, but stock price returns over the past year make clear that investors are looking for operators to maximize free cash flow, reduce debt, and return capital to shareholders. There will be multiple updates on capital budgets and commodity price forecasts over the next few weeks allowing the market to gauge if U.S. E&P companies will stay the course. Focusing on production growth is historically a hard habit for U.S. operators to break, but if collectively they can maintain a longer-term view, the fundamentals set up well for a multi-year bull cycle.

Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: The cold blanketing almost half of the U.S. will result in further drawdowns of both heating oil and natural gas leading to bullish inventory reports this week. And, again, all eyes will be on any movement in the Russia/Ukraine situation whether it's an invasion or negotiations.

To contact the author, email andreas.exarheas@rigzone.com


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