International experts point out slight decline in US shale oil industry

Nov. 16, 2015 - PRLog -- Crude oil production from major US shale plays is expected to drop in December 2015 by 118 thousand barrels per day compared to November and will reach the figure of 4.95 million barrels per day, said the US Energy Information Administration (EIA) experts.

Earlier, Russian Energy Minister Alexander Novak also said that the decline in shale oil production became a steady trend of recent months.

“When prices plummet, investment runs low. The number of drilling rigs in the United States reduced: a year ago there were 1,600 drilling rigs, now only about 600. That means that the number of drilling rigs reduced by more than 50%. In the last three months shale oil production decreased by 300 thousand barrels,” he said, stressing that shale oil is losing its ability to influence the global market.

In turn, Igor Sechin, the Executive Chairman of Rosneft, noted that the United States has a whole set of factors that shape the development of a competitive oil market.

“These are financial sources, financial derivatives, stock exchanges, a developed system of oil and gas pipelines and a large number of contractors that multiply the effect of the industry on the whole economy,” he explained.

At the same time, Igor Sechin reminded that the total debt of only 25 US companies involved in shale oil extraction is about 150 billion dollars.

“It is estimated that the existing hedging mechanisms and extended credit secured by inventory at low prices may persist, although to a lesser extent, up to 2017,” the head of the Russian state company added.

Leonid Bershidsky, Bloomberg View contributor, also stressed that the creditworthiness of the oil companies, both small and large, has declined substantially.

“In the second quarter of 2015, 83% of US onshore oil producers’ operating cash flow was used for debt servicing ― about twice the level of early 2012,” he noted.

Commenting on the current state and recent trends in the US shale oil industry, Nikolay Ivanov, Head of the Energy Markets Division at the Institute for Energy and Finance, expressed the opinion that the United States from the world’s biggest importer of energy resources becomes increasingly self-sufficient state in terms of energy.

“US shale gas and oil production became a great surprise for the world market as well as for all analytical and research agencies, including the Energy Information Administration ― the main independent investigative arm of the US government, which forecasts become the basis for the entire energy policy of the country,” he said in an interview with “PenzaNews” agency.

According to him, such production was a result of the explosive growth of the technologies efficiency, when every new improvement led to a multiple increase in productive capacity and reduced costs.

“Therefore, the industry continues to expand even in the face of low prices for oil and gas. And there is yet no limit to the improvement of technology and efficiency,” the expert said.

At the same time, in his opinion, many companies intentionally reduce production in order not to sell the extracted oil at a price they consider unfair.

“They hope that in competition with Saudi Arabia the victory will be for the American high-tech production,” Nikolay Ivanov said, adding that the US has become the second balancing supplier at the global oil market.

Howard Rogers, Director of Natural Gas Research Program at Oxford Institute for Energy Studies, also reminded that as with US shale gas a few years earlier the speed of production growth in US shale oil has surprised many observers.

“This along with slowing demand in Asia and OPEC’s desire to maintain market share has been a major contributor to lower oil prices which fell around November 2014. Most observers have been surprised that since the price collapse, US oil production has only recently began to decline,” the analyst noted.

The main reason for that from his point of view was that the producers focused on their best drilling locations in the face of lower oil prices.

“Moreover, many producers had hedged or sold production forward for up to around a year on the futures market, and many producers had lower production costs than had been assumed ― especially when service company margins were squeezed after the oil price fall,” the expert explained.

Full text news agency "PenzaNews":http://penzanews.ru/en/opinion/59934-2015