Total CEO: US Shale Oil Industry To See Wave Of Investment
LONDON, Oct 18 (Reuters) - The U.S. shale industry will see another production surge in 2018 as producers have sharply ramped up bets against a fall in oil prices, major oil executives and bankers said in London on Wednesday.
Activity amongst small- and mid-sized producers is ahead of last year's pace, analysts said, and a sharp increase in output could undermine the recent rally that in September pushed benchmark Brent crude to levels not seen since mid-2015.
Patrick Pouyanne, the chief executive of Total, speaking at the Oil & Money conference in London, said he expected global oil demand to grow strongly again this year, by up to 1.6 million barrels per day (bpd).
"Our U.S. colleagues are hedging like mad at $56 a barrel so we will see another wave of investment in U.S. shale, no doubt about it," Pouyanne said.
However, U.S. rig counts have been falling for several weeks and recently hit a four-month low, while U.S. production has grown at a slower rate than expected earlier in the year by the U.S. Energy Information Administration.
Production for 2017 is up by 467,000 barrels a day through July, according to the EIA, which in the late spring forecast 2017 output growth to come to 680,000 bpd. That prediction has since fallen to 380,000 bpd.
That could change. Ben Montalbano, co-founder of PetroNerds, a Denver, Colorado, research firm that tracks hedging at about 40 medium-sized oil producers, says those firms are more heavily hedged than at any point in the past six quarters.
The surge in hedging has come as prices have rallied, bringing the key WTI 2018 calendar swap, representing expected prices for 2018, to as much as $52.71 a barrel this week, one of the strongest levels since April.
That incentivizes producers to keep drilling even if oil prices retreat from the recent rally. Ian Taylor, chief executive of Vitol, the world's largest oil trader, said at the conference that he sees Brent crude falling to $45 a barrel in the next year as U.S. output surges.
Small and medium-sized U.S. shale producers have hedged about 32 percent of next year’s oil production at about $52 a barrel, researchers at investment bank Tudor, Pickering, Holt & Co estimate.
"There is definitely going to be a pretty large surge in production next year," said Jamaal Dardar, TPH’s E&P research associate. The EIA currently expects 2018 U.S. production of 9.9 million bpd, while TPH thinks that figure will come in at 10.2 million bpd.
A sharp fall in investment since oil prices collapsed in 2014 has led to a drop in development of new projects, which could spark an oil supply shortage after 2020, Pouyanne said.
He said the rate of final investment decisions (FIDs) in exploration and production had shrunk too much since 2015.
"The number of FIDs from 2010-2014 averaged 35 FIDs per year ... to add potentially 2.5 million bpd," he said.
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