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Shale Spending Surges | Russell T. Rudy Energy LLC

The international oil industry is dominated by the state oil companies and the 5 super-majors (Shell, ExxonMobil, Chevron, Total, and BP). However, “World Oil” reports that when it comes to capital spending to develop new production, the shale operators, largely independents which do not own refining capacity, are leading the world.

The large companies typically are involved with high risk, high reward mega projects with long lead times and large cash outlays. Still reacting to the crude oil price collapse, they are canceling projects, cutting jobs and selling assets to generate cash flow.  Consequently, Barclays Plc. sees investment in international projects in 2017 increasing only 3% over last year.

Conversely, shale producers have already dealt with cutbacks and asset sales, in order to survive. They also learned how to operate profitably in the $40 world.  When oil spiked to $50 last fall, many of them locked in these relatively high prices for the future via hedge contracts.  Now they can afford to invest in new shale projects at ten times the rate of their larger counterparts.  Barclays estimates that the independents will spend 32% more capital this year for a total investment of $84 billion.

While production cutbacks by OPEC and its allies might well prove effective, shale companies are already producing more oil. Consulting group, Wood Mackenzie, contends that these additional outlays by independent operators will increase domestic U. S. production by 800,000 barrels of oil per day in 2017.  If so, this would offset 44% of the cutbacks by OPEC and its partners.

Premier independent shale producers such as EOG and Pioneer Resources, are moving aggressively to exploit new opportunities. EOG is spending 44% more on capital projects, up to about $4 billion this year, and Pioneer will invest about 33% more, or $2.8 billion.  Among the super-majors, only ExxonMobil is increasing capital spending by about 3% to $22 billion.

To read the article in its entirety, please go to http://www.worldoil.com/news/2017/5/10/shale-drillers-seen-outspending-the-world-with-84-billion-spree .

Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide.  Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.